This week has seen the untimely passing of one of Asia’s and the world’s great statesmen, Lee Kuan Yew. There has been an outpouring of eulogies to celebrate his considerable contributions to the world. One of these contributions, of course, was inspiring Deng Xiaoping to embark on economic reforms during the course of a visit by Lee to China in 1976. So it is fitting that during Lee Kuan Yew’s final days, China’s current president, Xi Jinping, was outlining the next set of reforms at the China Development Forum.

It is extraordinary that a city-state, with a citizenry of just over 3 million people, often described as unique because of its size, geography, and history, can have had lessons for China, but that is indeed what happened. And now it would appear that this legacy is being extended, as China’s legacy of achievements in some areas is being taken up by the World Bank and extended to the rest of the world.

The big idea is that development must be pragmatically and persistently pursued over the long term, with constant fine-tuning and adaptation to the times and without ideology. In both Singapore and China, this fine-tuning has been done by government, albeit in different ways.

The “authoritarian bargain”

Singapore is one of the pioneers, and most successful practitioner, of the “authoritarian bargain,” a contract between the state and its citizens in which the former provides material and economic benefits to the people, and in exchange the people legitimize (or at least refrain from challenging) the state’s authority. This is now the model espoused by China and by many countries around the world.

The alternative model is that democracy, by presenting a robust competition of ideas, permits fine-tuning of development policy. Many countries like the Republic of Korea have moved towards democracy as they developed and this has helped sustain growth. An influential 2008 paper by Papaioannou and Siourounis in The Economic Journal shows that the historical evidence is that the democratic model is correlated with higher average long-run growth. China and Singapore are awkward exceptions that show that the average country experience cannot be easily extrapolated to specific country situations.

The experiences of both Singapore and China suggest that the key to success in an authoritarian model is to constantly update reforms and growth strategies to fit prevailing global conditions and to conform with new realities created by old growth strategies. Both countries have been “impatiently patient.” Impatient, because they both insisted on accelerated development. The “third world to first world in one generation” narrative that has driven Singapore has played out in China too, and increasingly resonates in other countries. The patience refers to the tactics of implementing reforms. Both Singapore and China have avoided big-bang, sudden, and sweeping change. Instead they have done pilots, started with small wins as Kishore Mahbubani has argued, and only then systematically extended their scope after a hard-nosed evaluation of whether the pilot succeeded or not.

Managing mistakes

There have been plenty of mistakes. From 1979 to 1984, Singapore attempted to force private industry to upgrade by instituting a policy of high wages. Government officials worried that the export-led growth model, based on foreign investment, was restricting Singaporean labor in low-productivity growth assembly jobs. They wanted to accelerate productivity growth. The results were not good, although the diagnosis of low labor productivity upgrading was sound. High wages contributed to a recession in 1985 and the policy was abandoned. Singapore found other industrial policy mechanisms to achieve the restructuring to higher value added, with more success.

Similarly, China has had setbacks with reform pilots that consequently slowed their rollout: pension portability and urban land market reform are both critical to long-term development in China, but the pilots have not gone well and the best way forward has yet to be determined. China is also struggling to develop better instruments to deliver inclusive growth. The urban-rural divide remains stubbornly high, and hukou reform and universal health care have lagged. Adjusting for prices, China is richer today than Britain was in 1948 when the National Health Service was introduced. Yet the government is cautious about scaling up inclusive growth policies without leading to long-term welfare dependency.

There is little regularity about whether and when reforms need adjusting, or even about the likely impact of reforms in different country contexts. For example, even though Singapore is a market-oriented economy, it is not a purely private sector driven economy. The government of Singapore regulates land ownership and sales, government-linked corporations produce up to 60 percent of GDP, and the country boasts two of the largest 10 sovereign wealth funds in the world. Anywhere else, this could be a recipe for disaster. Singapore has managed it partly by making sure that politicians are squeaky clean. There is no corruption. This may be due to high civil service wages, or from the likelihood of being caught in a small place where people know a lot about each other. In China, on the other hand, corruption from state economic engagement in the market economy is a significant problem. Premier Li refers to “tigers in the road” restraining economic development. In other words, the way in which the government has driven growth in China is now retarding further development. There has to be a course correction that the Chinese leadership is now embarked upon.

Can we export Lee’s results and maintain flexibility?

This search for practical on-the-ground know-how to get specific results, and getting the timing of reform right, is also behind World Bank President Jim Kim’s drive to restructure the World Bank into a “solutions” institution. Each of 14 global practices at the World Bank now has a solutions unit (and in addition there are cross-cutting solutions groups), and delivery of results is the focus. Indeed, this is a fashion that has swept all development agencies. It reflects an urge to find a scientific approach to development, one where specialists in various disciplines can be called upon to give professional advice, in the same way that a doctor can get a consultation from a colleague in any number of specializations. What remains to be seen is whether local country knowledge can be combined with global technical expertise in an efficient way, or whether a “good practice” global approach will crowd out seemingly heterodox local solutions. The lesson from both Singapore and China is that it is important to learn from the external world, but to adapt solutions and timing to the local context.

If the World Bank gets this balance right, then Lee Kuan Yew’s impact will continue to spread to a global scale. His pilot in Singapore has triggered reforms in China, and perhaps will inspire the World Bank to spread his approach further. The risk is that the adaptability he consistently demonstrated will get constrained by a search for the optimal solution. What the China Development Forum and Lee Kuan Yew have in common is the determination to constantly adapt to changing circumstance. Let us hope this will also characterize the World Bank’s solutions units.

Authors

This week has seen the untimely passing of one of Asia’s and the world’s great statesmen, Lee Kuan Yew. There has been an outpouring of eulogies to celebrate his considerable contributions to the world. One of these contributions, of course, was inspiring Deng Xiaoping to embark on economic reforms during the course of a visit by Lee to China in 1976. So it is fitting that during Lee Kuan Yew’s final days, China’s current president, Xi Jinping, was outlining the next set of reforms at the China Development Forum.

It is extraordinary that a city-state, with a citizenry of just over 3 million people, often described as unique because of its size, geography, and history, can have had lessons for China, but that is indeed what happened. And now it would appear that this legacy is being extended, as China’s legacy of achievements in some areas is being taken up by the World Bank and extended to the rest of the world.

The big idea is that development must be pragmatically and persistently pursued over the long term, with constant fine-tuning and adaptation to the times and without ideology. In both Singapore and China, this fine-tuning has been done by government, albeit in different ways.

The “authoritarian bargain”

Singapore is one of the pioneers, and most successful practitioner, of the “authoritarian bargain,” a contract between the state and its citizens in which the former provides material and economic benefits to the people, and in exchange the people legitimize (or at least refrain from challenging) the state’s authority. This is now the model espoused by China and by many countries around the world.

The alternative model is that democracy, by presenting a robust competition of ideas, permits fine-tuning of development policy. Many countries like the Republic of Korea have moved towards democracy as they developed and this has helped sustain growth. An influential 2008 paper by Papaioannou and Siourounis in The Economic Journal shows that the historical evidence is that the democratic model is correlated with higher average long-run growth. China and Singapore are awkward exceptions that show that the average country experience cannot be easily extrapolated to specific country situations.

The experiences of both Singapore and China suggest that the key to success in an authoritarian model is to constantly update reforms and growth strategies to fit prevailing global conditions and to conform with new realities created by old growth strategies. Both countries have been “impatiently patient.” Impatient, because they both insisted on accelerated development. The “third world to first world in one generation” narrative that has driven Singapore has played out in China too, and increasingly resonates in other countries. The patience refers to the tactics of implementing reforms. Both Singapore and China have avoided big-bang, sudden, and sweeping change. Instead they have done pilots, started with small wins as Kishore Mahbubani has argued, and only then systematically extended their scope after a hard-nosed evaluation of whether the pilot succeeded or not.

Managing mistakes

There have been plenty of mistakes. From 1979 to 1984, Singapore attempted to force private industry to upgrade by instituting a policy of high wages. Government officials worried that the export-led growth model, based on foreign investment, was restricting Singaporean labor in low-productivity growth assembly jobs. They wanted to accelerate productivity growth. The results were not good, although the diagnosis of low labor productivity upgrading was sound. High wages contributed to a recession in 1985 and the policy was abandoned. Singapore found other industrial policy mechanisms to achieve the restructuring to higher value added, with more success.

Similarly, China has had setbacks with reform pilots that consequently slowed their rollout: pension portability and urban land market reform are both critical to long-term development in China, but the pilots have not gone well and the best way forward has yet to be determined. China is also struggling to develop better instruments to deliver inclusive growth. The urban-rural divide remains stubbornly high, and hukou reform and universal health care have lagged. Adjusting for prices, China is richer today than Britain was in 1948 when the National Health Service was introduced. Yet the government is cautious about scaling up inclusive growth policies without leading to long-term welfare dependency.

There is little regularity about whether and when reforms need adjusting, or even about the likely impact of reforms in different country contexts. For example, even though Singapore is a market-oriented economy, it is not a purely private sector driven economy. The government of Singapore regulates land ownership and sales, government-linked corporations produce up to 60 percent of GDP, and the country boasts two of the largest 10 sovereign wealth funds in the world. Anywhere else, this could be a recipe for disaster. Singapore has managed it partly by making sure that politicians are squeaky clean. There is no corruption. This may be due to high civil service wages, or from the likelihood of being caught in a small place where people know a lot about each other. In China, on the other hand, corruption from state economic engagement in the market economy is a significant problem. Premier Li refers to “tigers in the road” restraining economic development. In other words, the way in which the government has driven growth in China is now retarding further development. There has to be a course correction that the Chinese leadership is now embarked upon.

Can we export Lee’s results and maintain flexibility?

This search for practical on-the-ground know-how to get specific results, and getting the timing of reform right, is also behind World Bank President Jim Kim’s drive to restructure the World Bank into a “solutions” institution. Each of 14 global practices at the World Bank now has a solutions unit (and in addition there are cross-cutting solutions groups), and delivery of results is the focus. Indeed, this is a fashion that has swept all development agencies. It reflects an urge to find a scientific approach to development, one where specialists in various disciplines can be called upon to give professional advice, in the same way that a doctor can get a consultation from a colleague in any number of specializations. What remains to be seen is whether local country knowledge can be combined with global technical expertise in an efficient way, or whether a “good practice” global approach will crowd out seemingly heterodox local solutions. The lesson from both Singapore and China is that it is important to learn from the external world, but to adapt solutions and timing to the local context.

If the World Bank gets this balance right, then Lee Kuan Yew’s impact will continue to spread to a global scale. His pilot in Singapore has triggered reforms in China, and perhaps will inspire the World Bank to spread his approach further. The risk is that the adaptability he consistently demonstrated will get constrained by a search for the optimal solution. What the China Development Forum and Lee Kuan Yew have in common is the determination to constantly adapt to changing circumstance. Let us hope this will also characterize the World Bank’s solutions units.

Last week’s decision by Britain to join the China-backed Asian Infrastructure Investment Bank (AIIB) came as a big surprise to a number of Washington observers.

As my colleague Thomas Wright wrote on this blog, Britain is America’s closest ally and it is rather unusual for the two governments to disagree publicly. An anonymous White House official even rebuked Britain for its “constant accommodation” of China.

But yesterday, news reports confirmed that three large European countries –France, Germany and Italy- had also agreed to join the AIIB, which was launched by Chinese President Xi Jinping last year. They will probably be followed shortly by two close American allies, Australia and South Korea, making the $50 billion new bank what the United States feared most: a rival to the World Bank, the International Monetary Fund, and the Asian Development Bank, and ultimately, a financial institution that will help China raise its international profile and influence.

Although it initially seemed a miscalculation, the British decision to become an AIIB founding member without precondition has turned into a small diplomatic success for London, which tried to gain first mover advantage (other European nations, such as France, were about to make their own announcement).

China has said it intends to further invest in British infrastructure, including railways, energy and water. It has already purchased nearly 10 percent of Thames Water, the country’s largest water company, as well as 10 percent in the firm that owns Heathrow International Airport. In addition, the City of London wants to become the world’s largest international exchange platform for the yuan, China’s currency. Several large Chinese banks such as China Merchant Bank and China Minsheng Bank have recently opened subsidiaries in London.

Having tried to lobby its allies against joining AIIB for the past few months, the Obama administration—which said it was concerned about the new bank’s governing structure—now appears to be the main loser. On the other hand, China, which just completed the annual session of its parliament on Sunday, seems to have won the show.

This once again demonstrates that China’s ability to divide Western nations among themselves is stronger than sometimes assumed. It also shows that U.S. interests increasingly diverge from Europeans who have—regrettably—little stake in the geopolitical situation in the Asia-Pacific. Since President Barak Obama was elected six years ago, the United States has insisted it wants to remain a global player in the region through its economic, political and military presence (the well-known “pivot to Asia” has been renamed “a rebalancing”), but the White House’s message on the AIIB has been confused and contradictory. It did not handle the situation well, and must now try to get back to the center stage.

Europeans, for their part, are mainly concerned with trade and investment issues. Their governments are now competing among themselves to attract Chinese investors. David Cameron, who is facing a general election on May 7, has so far been the best player in that game, but the French and the Germans should certainly not be discounted. Both countries have long-standing relations with China.

Meanwhile, the AIIB—soon to be based in Shanghai, Asia’s economic capital—will likely become a key tool of China’s new international strategy, and others—including Japan, which is the main country behind the Asian Development Bank—will have no choice but to accept it.

Authors

Last week’s decision by Britain to join the China-backed Asian Infrastructure Investment Bank (AIIB) came as a big surprise to a number of Washington observers.

As my colleague Thomas Wright wrote on this blog, Britain is America’s closest ally and it is rather unusual for the two governments to disagree publicly. An anonymous White House official even rebuked Britain for its “constant accommodation” of China.

But yesterday, news reports confirmed that three large European countries –France, Germany and Italy- had also agreed to join the AIIB, which was launched by Chinese President Xi Jinping last year. They will probably be followed shortly by two close American allies, Australia and South Korea, making the $50 billion new bank what the United States feared most: a rival to the World Bank, the International Monetary Fund, and the Asian Development Bank, and ultimately, a financial institution that will help China raise its international profile and influence.

Although it initially seemed a miscalculation, the British decision to become an AIIB founding member without precondition has turned into a small diplomatic success for London, which tried to gain first mover advantage (other European nations, such as France, were about to make their own announcement).

China has said it intends to further invest in British infrastructure, including railways, energy and water. It has already purchased nearly 10 percent of Thames Water, the country’s largest water company, as well as 10 percent in the firm that owns Heathrow International Airport. In addition, the City of London wants to become the world’s largest international exchange platform for the yuan, China’s currency. Several large Chinese banks such as China Merchant Bank and China Minsheng Bank have recently opened subsidiaries in London.

Having tried to lobby its allies against joining AIIB for the past few months, the Obama administration—which said it was concerned about the new bank’s governing structure—now appears to be the main loser. On the other hand, China, which just completed the annual session of its parliament on Sunday, seems to have won the show.

This once again demonstrates that China’s ability to divide Western nations among themselves is stronger than sometimes assumed. It also shows that U.S. interests increasingly diverge from Europeans who have—regrettably—little stake in the geopolitical situation in the Asia-Pacific. Since President Barak Obama was elected six years ago, the United States has insisted it wants to remain a global player in the region through its economic, political and military presence (the well-known “pivot to Asia” has been renamed “a rebalancing”), but the White House’s message on the AIIB has been confused and contradictory. It did not handle the situation well, and must now try to get back to the center stage.

Europeans, for their part, are mainly concerned with trade and investment issues. Their governments are now competing among themselves to attract Chinese investors. David Cameron, who is facing a general election on May 7, has so far been the best player in that game, but the French and the Germans should certainly not be discounted. Both countries have long-standing relations with China.

Meanwhile, the AIIB—soon to be based in Shanghai, Asia’s economic capital—will likely become a key tool of China’s new international strategy, and others—including Japan, which is the main country behind the Asian Development Bank—will have no choice but to accept it.

Authors

]]>
http://www.brookings.edu/blogs/future-development/posts/2015/03/06-kudos-shanta-mcarthur?rssid=world+bank{AB473681-A5FA-46B9-ACB7-837EECD67E52}http://webfeeds.brookings.edu/~/86527000/0/brookingsrss/topics/worldbank~Kudos-for-Shanta-How-to-appreciate-the-costing-paperKudos for Shanta: How to appreciate the 2002 costing paper

Recently I read that World Bank staff were unhappy about major cuts to the institution’s budget. This prompted me to try to figure out what the Bank’s proper budget should be to meet its goal of ending extreme poverty by 2030. I applied a variety of empirical techniques, but in the end realized that the question could not actually be answered because the Bank’s policies and institutional structures are the thing that matter most. It is the wrong question to ask what the World Bank’s budget should be. The right question to ask is: “If extreme poverty is eliminated, what should the Bank’s budget have been?” I am somewhat embarrassed to have tried to answer the budget question since attempting to do so might perpetuate misunderstandings among World Bank staff who believe their work is affected by the presence of a predictable salary….

1. It blurs the historical context

The Millennium Development Goals (MDGs) were launched in the early 2000s as a global response to many years of structural adjustment programs and Washington Consensus-style efforts that focused on policy reforms while scaling back public resources. In sub-Saharan Africa, the consequences ranged from a missed generation of investments in agriculture to an extended period of economic stagnation to widespread health outcome catastrophes. The raging AIDS pandemic was pushing down life expectancies in many countries, famously including Botswana despite the country’s strong economic policies.

In the lead up to the seminal March 2002 Monterrey conference on Financing for Development, provisional costing studies were crucial for shifting the resource-policy pendulum back in to balance. These included the high-profile 2001 Zedillo report (which included heavyweights like Jacques Delors and Manmohan Singh); the in-depth 2001 Commission on Macroeconomics and Health; and, yes, the World Bank’s 2002 paper, which was filled with caveats on the primacy of institutions and policies.

2. It confuses regarding the purpose, strengths, and limits of different costing exercises

I spent many years in the middle of the professional MDG policy debates and can’t recall a single occasion where the 2002 World Bank study was referenced as a definitive assessment of MDG financing needs. It was always appreciated as a “quick-and-dirty” assessment prepared for a specific political moment. More rigorous, although still explicitly indicative, costing exercises were published in 2005. One was presented by my own U.N. Millennium Project team, a product of roughly 18 months of bottom-up work in synthesizing supply and demand-side fiscal actions for a series of low-income countries. The other was presented by the Commission for Africa, where Nicholas Stern’s research team produced very consistent results for one region.

In more recent years, many prominent studies have continued to advance our understanding of global development financing needs. For example, the 2013 Lancet Commission on Investing in Health, led by Larry Summers and Dean Jamison, assessed the investments required to achieve a “grand convergence” in health outcomes by 2035. At a more operational level, GAVI’s medium-term analysis helped inform its highly successful recent replenishment to roll out a new wave of global immunizations programs that will directly save millions of lives over the next five years.

One of the most under-appreciated tools for assessing goal-oriented, cross-sector, country-level investments remains the Maquette for MDG Simulations (MAMS), first developed under François Bourguignon when he was a World Bank chief economist. In a funny wrinkle of MDG history, the Bank’s operational side consistently resisted requests to support more rigorous country-level MDG costings, although this was a primary recommendation in the original paper by Shanta and colleagues. Even after the G-8’s high-profile 2005 aid commitments to Africa, it was left to the IMF and UNDP to write up the macroeconomics of “Gleneagles Scenarios.“

3. Many of the best MDG successes are linked to aid increases

The health sphere has seen the most dramatic MDG breakthroughs. The most clear cut example is the advent of global AIDS treatment programs. In 2000, more than 25 million Africans were infected with HIV and there was no international effort—none at all—to make antiretroviral therapy available. Roughly 2 million people were estimated to be dying every year, simply because they could not afford medicine. This was a low-level global political equilibrium, not a domestic one. Total development assistance for health was worth only around $2 per African, according to the Institute for Health Metrics and Evaluation.

Today there are more than 8 million Africans on life-saving AIDS treatment thanks to the aid-financed launch of the Global Fund to Fight AIDS, tubercolosis, and malaria and the U.S. Presidential Emergency Program for AIDS Relief. These institutions were not launched by economic growth in Africa, although they have probably helped to boost growth. Their scale-up was the product of discernible global policy efforts and resource allocations, backed by MDG mobilization. For the average African country, health aid has increased more than fivefold, to around $13 per capita in 2011.

Africa’s child survival story is equally historic, if more complex, since mortality has many underlying causes. As a rough proxy for health system outcomes, Figure 1 shows that accelerations in under-5 mortality rate declines before and after 2001 are positively correlated with increases in health aid across low-income African countries. The correlation coefficient is 0.52 and all of the major accelerations were accompanied by major aid increases. No serious analyst suggests money “buys” outcomes. But no serious analysis suggests these outcomes would have arrived in the absence of money.

What does this mean for the SDGs?

Financing for the SDGs entails much greater complexity than the MDGs. There are more issues, countries, and forms of financing to consider. One understandable response is to feel overwhelmed and deem the task impractical. This yields the paradox of more complexity prompting less analysis. A better response is to break the challenge down in to manageable problems—separating out those that we already understand from those that we might figure out with a bit more work, and those that might need a better framing in order to make a first dent.

Even the U.N.’s provisional recent summary of sectoral costings has already played a useful policy role. Intergovernmental negotiators now commonly refer to the need for “at least a trillion dollars” of incremental annual investment, with the big numbers driven by infrastructure costs. The figure represents a small fraction of total global investment, but it is big enough to prompt a new outlook for those accustomed to thinking in terms of millions and billions. And although the $1 trillion number is extremely rough in its composition, it quickly helped governments realize that even if all OECD donor countries reached the 0.7 percent aid target then the total would only add up to some $300-350 billion per year. This quickly consolidated the understanding that SDG financing will hinge hugely on domestic resources and private investment in addition to aid.

Kudos deserved for the 2002 costing paper

Costing exercises need to build thoughtfully and carefully on the caveats and lessons of past assessments. Thankfully, many do. In retrospect, early analyses were pivotal to raising and guiding resources that drove subsequent MDG successes. Shanta and colleagues’ quick study might fall short of contemporary analytical standards, but it added a helpful assessment at a key juncture. Considering the extraordinary number of incremental lives saved and improved since, Shanta and his co-authors can be rightly proud of their contribution.

Authors

Recently I read that World Bank staff were unhappy about major cuts to the institution’s budget. This prompted me to try to figure out what the Bank’s proper budget should be to meet its goal of ending extreme poverty by 2030. I applied a variety of empirical techniques, but in the end realized that the question could not actually be answered because the Bank’s policies and institutional structures are the thing that matter most. It is the wrong question to ask what the World Bank’s budget should be. The right question to ask is: “If extreme poverty is eliminated, what should the Bank’s budget have been?” I am somewhat embarrassed to have tried to answer the budget question since attempting to do so might perpetuate misunderstandings among World Bank staff who believe their work is affected by the presence of a predictable salary….

1. It blurs the historical context

The Millennium Development Goals (MDGs) were launched in the early 2000s as a global response to many years of structural adjustment programs and Washington Consensus-style efforts that focused on policy reforms while scaling back public resources. In sub-Saharan Africa, the consequences ranged from a missed generation of investments in agriculture to an extended period of economic stagnation to widespread health outcome catastrophes. The raging AIDS pandemic was pushing down life expectancies in many countries, famously including Botswana despite the country’s strong economic policies.

In the lead up to the seminal March 2002 Monterrey conference on Financing for Development, provisional costing studies were crucial for shifting the resource-policy pendulum back in to balance. These included the high-profile 2001 Zedillo report (which included heavyweights like Jacques Delors and Manmohan Singh); the in-depth 2001 Commission on Macroeconomics and Health; and, yes, the World Bank’s 2002 paper, which was filled with caveats on the primacy of institutions and policies.

2. It confuses regarding the purpose, strengths, and limits of different costing exercises

I spent many years in the middle of the professional MDG policy debates and can’t recall a single occasion where the 2002 World Bank study was referenced as a definitive assessment of MDG financing needs. It was always appreciated as a “quick-and-dirty” assessment prepared for a specific political moment. More rigorous, although still explicitly indicative, costing exercises were published in 2005. One was presented by my own U.N. Millennium Project team, a product of roughly 18 months of bottom-up work in synthesizing supply and demand-side fiscal actions for a series of low-income countries. The other was presented by the Commission for Africa, where Nicholas Stern’s research team produced very consistent results for one region.

In more recent years, many prominent studies have continued to advance our understanding of global development financing needs. For example, the 2013 Lancet Commission on Investing in Health, led by Larry Summers and Dean Jamison, assessed the investments required to achieve a “grand convergence” in health outcomes by 2035. At a more operational level, GAVI’s medium-term analysis helped inform its highly successful recent replenishment to roll out a new wave of global immunizations programs that will directly save millions of lives over the next five years.

One of the most under-appreciated tools for assessing goal-oriented, cross-sector, country-level investments remains the Maquette for MDG Simulations (MAMS), first developed under François Bourguignon when he was a World Bank chief economist. In a funny wrinkle of MDG history, the Bank’s operational side consistently resisted requests to support more rigorous country-level MDG costings, although this was a primary recommendation in the original paper by Shanta and colleagues. Even after the G-8’s high-profile 2005 aid commitments to Africa, it was left to the IMF and UNDP to write up the macroeconomics of “Gleneagles Scenarios.“

3. Many of the best MDG successes are linked to aid increases

The health sphere has seen the most dramatic MDG breakthroughs. The most clear cut example is the advent of global AIDS treatment programs. In 2000, more than 25 million Africans were infected with HIV and there was no international effort—none at all—to make antiretroviral therapy available. Roughly 2 million people were estimated to be dying every year, simply because they could not afford medicine. This was a low-level global political equilibrium, not a domestic one. Total development assistance for health was worth only around $2 per African, according to the Institute for Health Metrics and Evaluation.

Today there are more than 8 million Africans on life-saving AIDS treatment thanks to the aid-financed launch of the Global Fund to Fight AIDS, tubercolosis, and malaria and the U.S. Presidential Emergency Program for AIDS Relief. These institutions were not launched by economic growth in Africa, although they have probably helped to boost growth. Their scale-up was the product of discernible global policy efforts and resource allocations, backed by MDG mobilization. For the average African country, health aid has increased more than fivefold, to around $13 per capita in 2011.

Africa’s child survival story is equally historic, if more complex, since mortality has many underlying causes. As a rough proxy for health system outcomes, Figure 1 shows that accelerations in under-5 mortality rate declines before and after 2001 are positively correlated with increases in health aid across low-income African countries. The correlation coefficient is 0.52 and all of the major accelerations were accompanied by major aid increases. No serious analyst suggests money “buys” outcomes. But no serious analysis suggests these outcomes would have arrived in the absence of money.

What does this mean for the SDGs?

Financing for the SDGs entails much greater complexity than the MDGs. There are more issues, countries, and forms of financing to consider. One understandable response is to feel overwhelmed and deem the task impractical. This yields the paradox of more complexity prompting less analysis. A better response is to break the challenge down in to manageable problems—separating out those that we already understand from those that we might figure out with a bit more work, and those that might need a better framing in order to make a first dent.

Even the U.N.’s provisional recent summary of sectoral costings has already played a useful policy role. Intergovernmental negotiators now commonly refer to the need for “at least a trillion dollars” of incremental annual investment, with the big numbers driven by infrastructure costs. The figure represents a small fraction of total global investment, but it is big enough to prompt a new outlook for those accustomed to thinking in terms of millions and billions. And although the $1 trillion number is extremely rough in its composition, it quickly helped governments realize that even if all OECD donor countries reached the 0.7 percent aid target then the total would only add up to some $300-350 billion per year. This quickly consolidated the understanding that SDG financing will hinge hugely on domestic resources and private investment in addition to aid.

Kudos deserved for the 2002 costing paper

Costing exercises need to build thoughtfully and carefully on the caveats and lessons of past assessments. Thankfully, many do. In retrospect, early analyses were pivotal to raising and guiding resources that drove subsequent MDG successes. Shanta and colleagues’ quick study might fall short of contemporary analytical standards, but it added a helpful assessment at a key juncture. Considering the extraordinary number of incremental lives saved and improved since, Shanta and his co-authors can be rightly proud of their contribution.

The World Bank’s 2013 "Review of IDA Graduation Policy" explains that the IDA “historical cutoff” for creditworthy countries was set at $250 per capita in 1964. That historical cutoff was arbitrarily reduced by 38 percent two decades later by introducing an “operational cutoff,” simply because “available IDA resources were not adequate to fund programs for all countries below this eligibility ceiling.” For the 2013 fiscal year, the cutoff in nominal terms was $1,195, less than one-third of the ceiling applied to lower middle income countries of about $4,000. Had the operational cutoff maintained its FY 1989 level relative to world GNI, the "operational" cutoff" in FY 2013 would have been $1,722.The corresponding "historic cutoff” would have been higher yet, at $2,375. To make matters worse, Galiani et al. show that IDA graduation serves a signaling function, leading to reduced access to other concessional aid as well. The IDA cutoff of $1,195 is now under one-thirtieth of GNI per capita of high-income countries, a number that has no basis in either analysis or equity. Just imagine if that 30-to-1 standard were applied for aid within donor countries.

To make the point, this blog focuses on the contentious case of India, with a GNI per capita of about $1,570 in 2013 and now on a transition course toward losing access to IDA and to bilateral aid from the United Kingdom. Summers and Peck argue for extending this cutoff to the Global Fund as well, in spite of strong cautions on global public goods grounds from Glassman et al.

Some might argue for disqualifying India from IDA or receiving official development assistance (ODA) on grounds that it could use its fairly good credit rating to borrow its way out of at least under $1.25 poverty. This would then lead to a debate on how much prudent margin India has for increased government borrowing while still servicing its debt, keeping its good credit rating, and avoiding increased vulnerability to shocks. There would in any event still be significant unmet needs on the margin.

India is, of course, a special case. Its population and its poverty burden are so big that it is far easier simply to exclude India from eligibility than to deal with the share of total aid it would get on the basis of usual need and performance criteria. This is particularly true when, as now, ODA budgets tighten. India has also traditionally been tough in dealing with donors and reluctant to seem to be asking for aid. But don’t donors ask for recipient countries to “be in the driver’s seat” and aim to promote democracy as well? Other strongly held arguments against aid to India have morphed over a generation from the country being hopeless, with a “Hindu rate of growth” that could not exceed three percent, to its being too formidable a competitor. Summers and Peck point to India’s space and aid programs (about $2.50 per capita inclusive) and to its being a major manufacturer of generic medications. To what extent are these (including South-South cooperation and saving lives globally by driving down drug prices) sins? Are they in any event worse than those of many “donor darlings”?

This is not to say that, other things equal, there should not be heavy weighting in IDA and ODA allocations to poorer countries and to fragile states, particularly given the risks and consequences of state failure. And given the small role of aid in public finances for lower middle income countries (very much so for India), there is a strong argument that aid should have to be high-powered; it should focus on mutually agreed changes in programs, policies, and institutions, and on results based financing rather than just financing more of the same. But that is different from a major bilateral or multilateral donor saying, “Let’s cut them off.” It may be too late to stop India’s “graduation” from IDA. But it is not too late to stop “defining development down,” and instead to raise the cutoff point for the International Development Association sharply.

The World Bank’s 2013 "Review of IDA Graduation Policy" explains that the IDA “historical cutoff” for creditworthy countries was set at $250 per capita in 1964. That historical cutoff was arbitrarily reduced by 38 percent two decades later by introducing an “operational cutoff,” simply because “available IDA resources were not adequate to fund programs for all countries below this eligibility ceiling.” For the 2013 fiscal year, the cutoff in nominal terms was $1,195, less than one-third of the ceiling applied to lower middle income countries of about $4,000. Had the operational cutoff maintained its FY 1989 level relative to world GNI, the "operational" cutoff" in FY 2013 would have been $1,722.The corresponding "historic cutoff” would have been higher yet, at $2,375. To make matters worse, Galiani et al. show that IDA graduation serves a signaling function, leading to reduced access to other concessional aid as well. The IDA cutoff of $1,195 is now under one-thirtieth of GNI per capita of high-income countries, a number that has no basis in either analysis or equity. Just imagine if that 30-to-1 standard were applied for aid within donor countries.

To make the point, this blog focuses on the contentious case of India, with a GNI per capita of about $1,570 in 2013 and now on a transition course toward losing access to IDA and to bilateral aid from the United Kingdom. Summers and Peck argue for extending this cutoff to the Global Fund as well, in spite of strong cautions on global public goods grounds from Glassman et al.

Some might argue for disqualifying India from IDA or receiving official development assistance (ODA) on grounds that it could use its fairly good credit rating to borrow its way out of at least under $1.25 poverty. This would then lead to a debate on how much prudent margin India has for increased government borrowing while still servicing its debt, keeping its good credit rating, and avoiding increased vulnerability to shocks. There would in any event still be significant unmet needs on the margin.

India is, of course, a special case. Its population and its poverty burden are so big that it is far easier simply to exclude India from eligibility than to deal with the share of total aid it would get on the basis of usual need and performance criteria. This is particularly true when, as now, ODA budgets tighten. India has also traditionally been tough in dealing with donors and reluctant to seem to be asking for aid. But don’t donors ask for recipient countries to “be in the driver’s seat” and aim to promote democracy as well? Other strongly held arguments against aid to India have morphed over a generation from the country being hopeless, with a “Hindu rate of growth” that could not exceed three percent, to its being too formidable a competitor. Summers and Peck point to India’s space and aid programs (about $2.50 per capita inclusive) and to its being a major manufacturer of generic medications. To what extent are these (including South-South cooperation and saving lives globally by driving down drug prices) sins? Are they in any event worse than those of many “donor darlings”?

This is not to say that, other things equal, there should not be heavy weighting in IDA and ODA allocations to poorer countries and to fragile states, particularly given the risks and consequences of state failure. And given the small role of aid in public finances for lower middle income countries (very much so for India), there is a strong argument that aid should have to be high-powered; it should focus on mutually agreed changes in programs, policies, and institutions, and on results based financing rather than just financing more of the same. But that is different from a major bilateral or multilateral donor saying, “Let’s cut them off.” It may be too late to stop India’s “graduation” from IDA. But it is not too late to stop “defining development down,” and instead to raise the cutoff point for the International Development Association sharply.

There are now some 9 million Syrian refugees and it is estimated that 5,000 additional refugees are created every day. Over 5 million Syrians reside in neighboring countries, principally Jordan (800,000), Lebanon (1.8 million) and Turkey (1.8 million). Europe and the West have been largely closed to these refugees with desperate boat journeys the stuff of daily news items. The crisis is not abating, and with 2 million refugees in Iraq the problem is expanding. What is clear is that many of these refugees are unlikely to be going home soon, if ever.

The vast majority of Turkey’s Syrian refugees are not in camps but among the broader population; only 220,000 remain in camps. Turkey maintains its open border policy—most recently accepting some 160,000 Syrian Kurds from Kobani over a three-day period in October. Though rare, tensions between locals and Syrians do erupt occasionally, as low-skill wages are depressed, the cost of low-end housing increases, and Syrians get blamed for the increase in crime. These issues need to be addressed, and addressed in the context of the real challenge—avoiding a permanent refugee population that turns into an underclass.

As noted by Kemal Kirisci and Raj Salooja in Foreign Affairs, “the Syrians in Turkey are no longer refugees waiting for the war to end but…immigrants ready to write a new chapter in their lives.” Following four years of temporary protection under the nebulous designation “guests,” refugees are now receiving identification cards granting them access to basic services like preventive health care and education. This stops short of official refugee status, which includes more rights, but is still a significant move in the right direction. Moreover, a proposal to regulate working conditions was submitted to the Council of Ministers, allowing Syrians to apply for work permits with their ID cards.

In the meantime, a burgeoning Syrian business community is emerging. Many are in Gaziantep, Kilis, and Urfa—cities bordering Syria. There are also fairly large Syrian middle-class communities in cities like Mersin, 300 kilometers from Syria. There, over 50,000 Syrians have established Syrian schools, hundreds of businesses, and other reminders of home. The old Istanbul neighborhood of Aksaray boasts a “Kucuk Halep” (small Aleppo) with Syrian restaurants, bookstores, movie houses and other businesses. Similar areas can be found in other urban centers.

In 2013, Syrians established 489 of the 3,875 foreign-owned firms out of the 49,000 firms established in Turkey. That number grew to 1,122 in 2014 when Syrians accounted for 26 percent of the 4,249 foreign firms out of a total of 54,000 established in 2014. A larger influx is expected in 2015 as Syrians use their new status to establish more businesses or formalize them. Many other firms operate informally while some use Turkish partners of convenience. Many also employ Syrian workers. Turkish officials are looking at special arrangements for Syrians to work in Syrian firms. The Syria Trade Office, a Mersin consultancy, estimates that some $10 billion in Syrian capital has entered Turkey since 2011.

Turkey’s links with Syria were growing rapidly before 2011 and the subsequent civil war. The removal of visa barriers in 2009-2010 between Turkey and Jordan, Lebanon and Syria led to economic agreements and activities promising much greater economic cooperation. The World Bank noted the potential of regional economic integration through two recent reports, one by Sibel Kulaksiz, et al. and the other by Elena Ianchovichina and Maros Ivanic. The war abruptly slowed this growth in trade, which was expected to go from $2.3 billion annually in 2010 to $5 billion by 2014. Also coming to an end at that time was the deepening in trade that had just begun.

Yet, the visa-free area has continued to expand as Turkey and Iraq lifted visa requirements in 2014. Iraqis are now the fourth largest owners of newly established foreign firms in Turkey. Trade with both Iraq and Syria is expected to further increase in 2015. The recent rapprochement with Iraq and the re-opening of the Iraqi economy to Turkish firms (until recently largely concentrated in the Kurdish region) should help. In the meantime, while trade with Syria, now at its 2010 level, is recovering, its content is different, with a focus on basic foodstuffs, construction material, etc. It also remains a far cry from the consumer durables and capital goods that were expected to dominate prior to the war. Still, it underlines that trade continues and the growing number of Syrian firms are key to maintaining and even strengthening these ties. The over 330 percent increase in Mersin’s 2014 trade with Syria and in other border cities is linked closely to Syrian firms there.

Nevertheless, life remains difficult for many refugees in Turkey as they try to adapt with language, yet another barrier. However, the resilience of Syrian workers and businesses and their legalization provides hope that Turkey may yet avoid a permanent refugee population and a persistent underclass. When peace comes, these links will undoubtedly serve both countries well. In the meantime, it would be useful to think about how the international community could support Syrian businesses in Turkey (as well as in their other countries of refuge). For example, the World Bank’s creative way of helping Syrian refugees by supporting local communities in Lebanon and Jordan could perhaps inspire similar programs for Syrian entrepreneurs and workers in need of new skills.

Authors

Omer Karasapan

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Mon, 26 Jan 2015 09:00:00 -0500Omer Karasapan

There are now some 9 million Syrian refugees and it is estimated that 5,000 additional refugees are created every day. Over 5 million Syrians reside in neighboring countries, principally Jordan (800,000), Lebanon (1.8 million) and Turkey (1.8 million). Europe and the West have been largely closed to these refugees with desperate boat journeys the stuff of daily news items. The crisis is not abating, and with 2 million refugees in Iraq the problem is expanding. What is clear is that many of these refugees are unlikely to be going home soon, if ever.

The vast majority of Turkey’s Syrian refugees are not in camps but among the broader population; only 220,000 remain in camps. Turkey maintains its open border policy—most recently accepting some 160,000 Syrian Kurds from Kobani over a three-day period in October. Though rare, tensions between locals and Syrians do erupt occasionally, as low-skill wages are depressed, the cost of low-end housing increases, and Syrians get blamed for the increase in crime. These issues need to be addressed, and addressed in the context of the real challenge—avoiding a permanent refugee population that turns into an underclass.

As noted by Kemal Kirisci and Raj Salooja in Foreign Affairs, “the Syrians in Turkey are no longer refugees waiting for the war to end but…immigrants ready to write a new chapter in their lives.” Following four years of temporary protection under the nebulous designation “guests,” refugees are now receiving identification cards granting them access to basic services like preventive health care and education. This stops short of official refugee status, which includes more rights, but is still a significant move in the right direction. Moreover, a proposal to regulate working conditions was submitted to the Council of Ministers, allowing Syrians to apply for work permits with their ID cards.

In the meantime, a burgeoning Syrian business community is emerging. Many are in Gaziantep, Kilis, and Urfa—cities bordering Syria. There are also fairly large Syrian middle-class communities in cities like Mersin, 300 kilometers from Syria. There, over 50,000 Syrians have established Syrian schools, hundreds of businesses, and other reminders of home. The old Istanbul neighborhood of Aksaray boasts a “Kucuk Halep” (small Aleppo) with Syrian restaurants, bookstores, movie houses and other businesses. Similar areas can be found in other urban centers.

In 2013, Syrians established 489 of the 3,875 foreign-owned firms out of the 49,000 firms established in Turkey. That number grew to 1,122 in 2014 when Syrians accounted for 26 percent of the 4,249 foreign firms out of a total of 54,000 established in 2014. A larger influx is expected in 2015 as Syrians use their new status to establish more businesses or formalize them. Many other firms operate informally while some use Turkish partners of convenience. Many also employ Syrian workers. Turkish officials are looking at special arrangements for Syrians to work in Syrian firms. The Syria Trade Office, a Mersin consultancy, estimates that some $10 billion in Syrian capital has entered Turkey since 2011.

Turkey’s links with Syria were growing rapidly before 2011 and the subsequent civil war. The removal of visa barriers in 2009-2010 between Turkey and Jordan, Lebanon and Syria led to economic agreements and activities promising much greater economic cooperation. The World Bank noted the potential of regional economic integration through two recent reports, one by Sibel Kulaksiz, et al. and the other by Elena Ianchovichina and Maros Ivanic. The war abruptly slowed this growth in trade, which was expected to go from $2.3 billion annually in 2010 to $5 billion by 2014. Also coming to an end at that time was the deepening in trade that had just begun.

Yet, the visa-free area has continued to expand as Turkey and Iraq lifted visa requirements in 2014. Iraqis are now the fourth largest owners of newly established foreign firms in Turkey. Trade with both Iraq and Syria is expected to further increase in 2015. The recent rapprochement with Iraq and the re-opening of the Iraqi economy to Turkish firms (until recently largely concentrated in the Kurdish region) should help. In the meantime, while trade with Syria, now at its 2010 level, is recovering, its content is different, with a focus on basic foodstuffs, construction material, etc. It also remains a far cry from the consumer durables and capital goods that were expected to dominate prior to the war. Still, it underlines that trade continues and the growing number of Syrian firms are key to maintaining and even strengthening these ties. The over 330 percent increase in Mersin’s 2014 trade with Syria and in other border cities is linked closely to Syrian firms there.

Nevertheless, life remains difficult for many refugees in Turkey as they try to adapt with language, yet another barrier. However, the resilience of Syrian workers and businesses and their legalization provides hope that Turkey may yet avoid a permanent refugee population and a persistent underclass. When peace comes, these links will undoubtedly serve both countries well. In the meantime, it would be useful to think about how the international community could support Syrian businesses in Turkey (as well as in their other countries of refuge). For example, the World Bank’s creative way of helping Syrian refugees by supporting local communities in Lebanon and Jordan could perhaps inspire similar programs for Syrian entrepreneurs and workers in need of new skills.

Authors

Omer Karasapan

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http://www.brookings.edu/blogs/africa-in-focus/posts/2015/01/23-zambia-votes-congo-protests-imf-african-growth-copley?rssid=world+bank{D8540486-1AF0-48B7-B838-5C94BE10F59D}http://webfeeds.brookings.edu/~/83961457/0/brookingsrss/topics/worldbank~Africa-in-the-News-Zambia-Votes-the-DRC-Amends-Controversial-Bill-amid-Protests-and-the-IMF-and-World-Bank-Predict-Stable-Growth-for-Africa-inAfrica in the News: Zambia Votes, the DRC Amends Controversial Bill amid Protests, and the IMF and World Bank Predict Stable Growth for Africa in 2015-2016

Vote Counting Continues in Zambia’s Presidential Elections

As of 4:00 pm in Lusaka on Friday, January 23, Edgar Lungu, the presidential candidate of Zambia’s ruling Patriotic Front party, narrowly leads Hakainde Hichilema from the opposing United Party for National Development, by less than two percentage points (48.72 to 46.85 percent, respectively). The Electoral Commission has tallied votes from 121 of 150 constituencies, and the winner of the election is expected to be announced on Saturday. Voting began on Tuesday and was extended through Friday as torrential rains disrupted polling in some areas, contributing to low voter turnout estimated at 34 percent. The newly elected president will serve the remainder of the late President Michael Sata’s term in office, until elections are held again in September 2016. Mining firms in particular are closely monitoring the outcome of the election since it is thought a win for Lungu could mean the continuation of a newly implemented law that significantly increased taxes on mining operations—a law that Hichilema promised to revise if he were elected.

Protests Influence Key Vote on National Census in the DRC

Since Monday, January 19, protestors have assembled in Kinshasa and Goma against a draft law calling for a national census to be completed prior to the next presidential elections—currently scheduled for 2016—effectively delaying them by three or more years. Challengers to the bill, which was passed in the lower house of parliament on Saturday, argue that this law would enable President Joseph Kabila to stay in office beyond his current five-year mandate, despite the fact that the Congolese constitution bars presidents from serving more than two five-year terms. A Senate vote on the bill was scheduled to be held on Thursday, January 22, but was delayed until Friday, as demonstrations grew increasingly violent. On Thursday, police reportedly opened fire on hundreds of protestors in Goma, killing as many as 42 people according to the International Federation of Human Rights, although the government has disputed these figures.

On Friday, January 23, the Senate voted to amend the bill so that the census and updating of the electoral list must be finalized by 2016, in time for the elections. Policymakers in the House and Senate will now work to find a compromise between the two versions of the bill, which will be up for a final vote sometime next week.

IMF and World Bank Forecast Further African Growth in 2015 and 2016

This week, the International Monetary Fund (IMF) and World Bank released their latest projections for economic growth in sub-Saharan Africa, which they predict will remain robust through 2016. In its World Economic Outlook Update, launched on Tuesday, the IMF estimates that sub-Saharan Africa grew at 4.8 percent in 2014 and would experience further growth in 2015 and 2016 at rates of 4.9 and 5.2 percent respectively. However, the 2015 and 2016 figures have been downwardly revised by -0.9 and -0.8 percent since the IMF made its last projections in October 2014, due to the slump in oil and commodity prices, which have especially affected two of the continent’s economic powerhouses—Nigeria, the region’s largest oil producer, and South Africa, which is vulnerable to low commodity prices and has experienced large-scale industrial action, rolling blackouts and waning investor confidence in 2014, further weakening its economy. Meanwhile, the World Bank anticipates accelerated growth for sub-Saharan Africa from 4.5 percent in 2014 to 5.1 percent in 2017, owing to a rise in investment for infrastructure projects and increased productivity in the agriculture and services sectors. Yet, the World Bank also foresees possible challenges to growth posed by a renewal in the spread of Ebola, terrorist threats in West and East Africa, depressed commodity prices and unstable global financial conditions. To reduce the likelihood and impact of these risks, the World Bank proposes that African policymakers limit their budgets, restore fiscal buffers and allocate spending toward more productive sectors, including infrastructure.

Authors

Amy Copley

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Fri, 23 Jan 2015 16:17:00 -0500Amy Copley

Vote Counting Continues in Zambia’s Presidential Elections

As of 4:00 pm in Lusaka on Friday, January 23, Edgar Lungu, the presidential candidate of Zambia’s ruling Patriotic Front party, narrowly leads Hakainde Hichilema from the opposing United Party for National Development, by less than two percentage points (48.72 to 46.85 percent, respectively). The Electoral Commission has tallied votes from 121 of 150 constituencies, and the winner of the election is expected to be announced on Saturday. Voting began on Tuesday and was extended through Friday as torrential rains disrupted polling in some areas, contributing to low voter turnout estimated at 34 percent. The newly elected president will serve the remainder of the late President Michael Sata’s term in office, until elections are held again in September 2016. Mining firms in particular are closely monitoring the outcome of the election since it is thought a win for Lungu could mean the continuation of a newly implemented law that significantly increased taxes on mining operations—a law that Hichilema promised to revise if he were elected.

Protests Influence Key Vote on National Census in the DRC

Since Monday, January 19, protestors have assembled in Kinshasa and Goma against a draft law calling for a national census to be completed prior to the next presidential elections—currently scheduled for 2016—effectively delaying them by three or more years. Challengers to the bill, which was passed in the lower house of parliament on Saturday, argue that this law would enable President Joseph Kabila to stay in office beyond his current five-year mandate, despite the fact that the Congolese constitution bars presidents from serving more than two five-year terms. A Senate vote on the bill was scheduled to be held on Thursday, January 22, but was delayed until Friday, as demonstrations grew increasingly violent. On Thursday, police reportedly opened fire on hundreds of protestors in Goma, killing as many as 42 people according to the International Federation of Human Rights, although the government has disputed these figures.

On Friday, January 23, the Senate voted to amend the bill so that the census and updating of the electoral list must be finalized by 2016, in time for the elections. Policymakers in the House and Senate will now work to find a compromise between the two versions of the bill, which will be up for a final vote sometime next week.

IMF and World Bank Forecast Further African Growth in 2015 and 2016

This week, the International Monetary Fund (IMF) and World Bank released their latest projections for economic growth in sub-Saharan Africa, which they predict will remain robust through 2016. In its World Economic Outlook Update, launched on Tuesday, the IMF estimates that sub-Saharan Africa grew at 4.8 percent in 2014 and would experience further growth in 2015 and 2016 at rates of 4.9 and 5.2 percent respectively. However, the 2015 and 2016 figures have been downwardly revised by -0.9 and -0.8 percent since the IMF made its last projections in October 2014, due to the slump in oil and commodity prices, which have especially affected two of the continent’s economic powerhouses—Nigeria, the region’s largest oil producer, and South Africa, which is vulnerable to low commodity prices and has experienced large-scale industrial action, rolling blackouts and waning investor confidence in 2014, further weakening its economy. Meanwhile, the World Bank anticipates accelerated growth for sub-Saharan Africa from 4.5 percent in 2014 to 5.1 percent in 2017, owing to a rise in investment for infrastructure projects and increased productivity in the agriculture and services sectors. Yet, the World Bank also foresees possible challenges to growth posed by a renewal in the spread of Ebola, terrorist threats in West and East Africa, depressed commodity prices and unstable global financial conditions. To reduce the likelihood and impact of these risks, the World Bank proposes that African policymakers limit their budgets, restore fiscal buffers and allocate spending toward more productive sectors, including infrastructure.

Authors

Amy Copley

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http://www.brookings.edu/blogs/future-development/posts/2015/01/22-world-development-report-poverty-squire?rssid=world+bank{09A08A8D-D2B0-4EB5-AAB6-6924ED2D6EE4}http://webfeeds.brookings.edu/~/83874826/0/brookingsrss/topics/worldbank~The-World-Development-Report-How-Poverty-Looks-Years-LaterThe 1990 World Development Report: How Poverty Looks 25 Years Later

If a genie had popped out of my coffee cup early one morning just after I had been invited to lead the 1990 World Development Report on Poverty and offered me one wish, what would I have asked for? My answer will seem obvious once it is recalled that as we set about our task all we had at our disposal was information on levels of poverty and their changes over time in barely a dozen countries. What was so desperately needed, and what I would have requested, was vastly more knowledge about the poor and how their well-being was, or was not, improving. The genie did not disappoint. He did not solve my immediate problem, but over the next 25 years the statistical foundation for understanding poverty as reported by the World Bank’s PovcalNet has been utterly transformed—with coverage now extending to 128 developing countries and including over 1,000 household surveys, an outcome not even dreamed of in 1990. This is not measurement for measurement’s sake, however. Thanks to these efforts, our grasp of the growth-inequality-poverty interplay and our appreciation of the factors—income and non-income, internal and external—affecting the well-being of poor households have taken giant steps forward.

A second, major advance is the proliferation of innovative, micro-interventions that are proving effective in reaching and benefitting the poor. Over the last two decades, safety nets, workfare programs, conditional cash transfers, microfinance and similar programs have sprung up in many guises in all parts of the developing world. Research has followed suit, and, in doing so, has demonstrated that concern about equity-efficiency trade-offs can often be overcome by careful consideration of the market imperfections that trap the poor. Measuring the benefits of these interventions has profited enormously from the emergence of rigorous impact evaluation, a development that could be so much more valuable for policy if it paid equal attention to costs, since benefits without costs is like, well, Little without Mirrlees.

The last 25 years have also seen a broadening of the concept of poverty. While WDR90 went beyond consumption as the sole dimension of living standards by encompassing, in particular, health status and educational attainment, other aspects—political voice, domestic violence, vulnerability to shocks, gender differences—have increasingly received attention. Often informed by qualitative techniques such as self-assessments, focus groups, and participant observation, these additional dimensions have brought color to the black-and-white of numbers, proved a valuable crosscheck on quantitative approaches, and contributed to the design and implementation of poverty programs.

How would these advances—in poverty statistics, micro-interventions, and a fuller characterization of poverty—have affected the WDR90 strategy? The first has, in the main, supported the 1990 report’s focus on broad-based, labor-using growth and making sure social services, especially primary health care and education, reach the poor. In contrast, had knowledge of the other two, especially the tidal wave of evidence on social protection programs, been available in 1990, the two-pronged strategy would certainly have been expanded to incorporate a third tine aimed at maintaining minimum living standards and protecting the poor by means of state-contingent transfers (pensions for the old), incentive-based transfers, support for market-based enterprise (micro-insurance), and more participatory delivery mechanisms.

The last quarter-century has witnessed a stunning decline in extreme poverty. Indeed, the Millennium Development Goal of halving the 1990 level was achieved five years before the target date of 2015. What will the next quarter century bring? The answer of course depends on what countries do. Current discourse in policy circles does not bode uniformly well. Thus, the attention presently given to “inclusive growth,” growth that benefits all segments of society, runs the risk of detracting from efforts to give special consideration to those in greatest need. And concern with the expanding absolute gap between the incomes of the rich and the poor, especially in countries like China and India where inequality has increased, has resulted in questions being raised about the continuation of policies that to date have proven successful in reducing poverty. Reassuringly, proposals for the Sustainable Development Goals retain the focus on extreme poverty and with good reason—a billion people, one in every seven, remain mired in a desperate fight for daily survival and we are now better equipped than ever to effectively lift them out of poverty.

Assuming countries persist with a poverty focus, what can we expect? WDR90 predicted correctly that sub-Saharan Africa would be the only region to see extreme poverty increase. In fact, by 2011 there were more poor people on the African continent than in either East Asia or South Asia. This outcome reflects the dismal performance in sub-Saharan Africa with respect to the two prongs of the 1990 strategy, compared with the tremendous progress in Asia. Circumstances, however, are changing. Sub-Saharan Africa’s recent growth acceleration, if sustained, will ensure substantial declines in poverty in the coming years, while slower growth will temper the rate of poverty reduction in Asia. In addition, China and other Asian countries will need to rely more heavily on the administratively challenging redistributive policies of the third prong to combat rising inequality and to reach the remaining poor, an increasing proportion of who will be those unable to participate in economic activity. Nevertheless, for the developing world as a whole, there is every prospect of eliminating extreme poverty within the next quarter century. However, there will be a sizeable residual remaining in countries ravaged by conflict or suffering from serious misgovernment (and hence incapable of implementing the original two prongs) and in those countries unable to provide adequate social protection for the poorest members of society (the third prong).

Authors

Lyn Squire

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Thu, 22 Jan 2015 09:00:00 -0500Lyn Squire

If a genie had popped out of my coffee cup early one morning just after I had been invited to lead the 1990 World Development Report on Poverty and offered me one wish, what would I have asked for? My answer will seem obvious once it is recalled that as we set about our task all we had at our disposal was information on levels of poverty and their changes over time in barely a dozen countries. What was so desperately needed, and what I would have requested, was vastly more knowledge about the poor and how their well-being was, or was not, improving. The genie did not disappoint. He did not solve my immediate problem, but over the next 25 years the statistical foundation for understanding poverty as reported by the World Bank’s PovcalNet has been utterly transformed—with coverage now extending to 128 developing countries and including over 1,000 household surveys, an outcome not even dreamed of in 1990. This is not measurement for measurement’s sake, however. Thanks to these efforts, our grasp of the growth-inequality-poverty interplay and our appreciation of the factors—income and non-income, internal and external—affecting the well-being of poor households have taken giant steps forward.

A second, major advance is the proliferation of innovative, micro-interventions that are proving effective in reaching and benefitting the poor. Over the last two decades, safety nets, workfare programs, conditional cash transfers, microfinance and similar programs have sprung up in many guises in all parts of the developing world. Research has followed suit, and, in doing so, has demonstrated that concern about equity-efficiency trade-offs can often be overcome by careful consideration of the market imperfections that trap the poor. Measuring the benefits of these interventions has profited enormously from the emergence of rigorous impact evaluation, a development that could be so much more valuable for policy if it paid equal attention to costs, since benefits without costs is like, well, Little without Mirrlees.

The last 25 years have also seen a broadening of the concept of poverty. While WDR90 went beyond consumption as the sole dimension of living standards by encompassing, in particular, health status and educational attainment, other aspects—political voice, domestic violence, vulnerability to shocks, gender differences—have increasingly received attention. Often informed by qualitative techniques such as self-assessments, focus groups, and participant observation, these additional dimensions have brought color to the black-and-white of numbers, proved a valuable crosscheck on quantitative approaches, and contributed to the design and implementation of poverty programs.

How would these advances—in poverty statistics, micro-interventions, and a fuller characterization of poverty—have affected the WDR90 strategy? The first has, in the main, supported the 1990 report’s focus on broad-based, labor-using growth and making sure social services, especially primary health care and education, reach the poor. In contrast, had knowledge of the other two, especially the tidal wave of evidence on social protection programs, been available in 1990, the two-pronged strategy would certainly have been expanded to incorporate a third tine aimed at maintaining minimum living standards and protecting the poor by means of state-contingent transfers (pensions for the old), incentive-based transfers, support for market-based enterprise (micro-insurance), and more participatory delivery mechanisms.

The last quarter-century has witnessed a stunning decline in extreme poverty. Indeed, the Millennium Development Goal of halving the 1990 level was achieved five years before the target date of 2015. What will the next quarter century bring? The answer of course depends on what countries do. Current discourse in policy circles does not bode uniformly well. Thus, the attention presently given to “inclusive growth,” growth that benefits all segments of society, runs the risk of detracting from efforts to give special consideration to those in greatest need. And concern with the expanding absolute gap between the incomes of the rich and the poor, especially in countries like China and India where inequality has increased, has resulted in questions being raised about the continuation of policies that to date have proven successful in reducing poverty. Reassuringly, proposals for the Sustainable Development Goals retain the focus on extreme poverty and with good reason—a billion people, one in every seven, remain mired in a desperate fight for daily survival and we are now better equipped than ever to effectively lift them out of poverty.

Assuming countries persist with a poverty focus, what can we expect? WDR90 predicted correctly that sub-Saharan Africa would be the only region to see extreme poverty increase. In fact, by 2011 there were more poor people on the African continent than in either East Asia or South Asia. This outcome reflects the dismal performance in sub-Saharan Africa with respect to the two prongs of the 1990 strategy, compared with the tremendous progress in Asia. Circumstances, however, are changing. Sub-Saharan Africa’s recent growth acceleration, if sustained, will ensure substantial declines in poverty in the coming years, while slower growth will temper the rate of poverty reduction in Asia. In addition, China and other Asian countries will need to rely more heavily on the administratively challenging redistributive policies of the third prong to combat rising inequality and to reach the remaining poor, an increasing proportion of who will be those unable to participate in economic activity. Nevertheless, for the developing world as a whole, there is every prospect of eliminating extreme poverty within the next quarter century. However, there will be a sizeable residual remaining in countries ravaged by conflict or suffering from serious misgovernment (and hence incapable of implementing the original two prongs) and in those countries unable to provide adequate social protection for the poorest members of society (the third prong).

Authors

Lyn Squire

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http://www.brookings.edu/blogs/africa-in-focus/posts/2014/12/10-african-priorities-us-treasury-global-agenda-sy?rssid=world+bank{0D053CC4-BB30-485E-911B-E796D162F2AD}http://webfeeds.brookings.edu/~/80626518/0/brookingsrss/topics/worldbank~African-Priorities-and-the-US-Treasury-Global-AgendaAfrican Priorities and the U.S. Treasury Global Agenda

The United States plays a leadership role when it comes to framing the agenda on global economic and financial policy, and it is important for African policymakers to be aware of what is at stake for the continent.

Sheets is the main U.S. counterpart of the World Bank and the IMF. Since the U.S is the largest shareholder and practically has veto power in both institutions, the U.S. Treasury’s agenda typically serves as a guide for their strategies. In turn, the IMF and World Bank have immense influence when it comes to low-income African countries. As a result, what Sheets says will help formulate these institutions’ strategy towards Africa. So, I am betting that these issues will become much more important for Africa in the years to come.

Last week, the undersecretary spoke on the six core pillars of the Treasury’s strategy moving forward, including: 1) strengthening and rebalancing global growth; 2) deepening engagement with emerging market giants; 3) framing a resilient global financial system; 4) facilitating access to capital; 5) promoting open trade and investment; and 6) enhancing U.S. leadership at the IMF.

These mutually reinforcing objectives aim to strengthen economic performance at the global level, but also have specific implications for the African continent: Stronger global economic growth helps sustain the current GDP growth many African countries are currently experiencing, boosts financial and investment flows to the continent, and potentially deepens local financial markets. An increasingly resilient international financial system would insulate Africa from disruptive crises and provide a supportive environment for the continent’s growth. Improved U.S. bilateral relations with China could yield a fruitful trilateral partnership with Africa by ensuring complementarity in investments, as both the U.S. and China are increasing their commercial engagement with the continent. Giving a greater voice to emerging markets through reform of the International Monetary Fund (IMF) is also a good step toward improving relations with these countries and supporting the good governance of international institutions.

The U.S. Treasury’s Approach to African Challenges

In addition to these global objectives, in his speech Sheets specifically highlighted African issues two times. First, he named the West African Ebola virus epidemic one of the foremost challenges facing global economic policymakers as they seek to achieve the G-20 Leaders’ objective of “strong, sustainable and balanced global growth.” Second, he identified Africa as one of the focal regions of one of the “core pillars” of the Treasury’s strategy “facilitating access to capital.” Sheets stated:

“Expanding access to financial services for the over 2 billion unbanked people in the world promises to open new possibilities as the financial wherewithal in these population grows. Expanding access to finance and deepening financial markets in Africa, the Middle East and other developing regions will support businesses, empower entrepreneurs, boost household incomes, and ultimately help fuel growth across developing economies. This is why we are working with the G-20 and with other partners to broaden access for developing countries and to make access to capital within these countries more inclusive.”

The Treasury’s focus on expanding access to capital and enhancing capital markets in Africa is a welcome step, as nearly a quarter of adults in sub-Saharan Africa lack access to formal financial services. Moreover, Africa requires substantial inflows of capital to the region in order to finance transformative projects in infrastructure across the continent—estimated to cost $100 billion a year. However, to meet this ambitious target, the U.S. Treasury will need to coordinate with international and African stakeholders to leverage sufficient public and private sector investment and bolster African capital markets.

The U.S. Agenda to Expand Access to Capital and Deepen Capital Markets for Development

The five elements integral to financing the region’s development projects enumerated in Sheets’ speech are:

Blended Finance. Sheets called on multilateral development banks, including the World Bank, to “use their balance sheets to catalyze private investment.” Development finance institutions can help guarantee investments and mitigate risks posed in unstable institutional and economic environments. In doing so, development institutions provide a safety net for private sector investors, which can reduce risks and spur investment. They will need to innovate to come up with new instruments and arrangements that can facilitate private investment in Africa.

Domestic Private Finance. African governments and private sector leaders must collaborate to generate a stable regulatory environment conducive to the growth of financial markets and bolster financial intermediation. Indeed, small and medium enterprise finance is still in short supply. Developing local capital markets and broadening the domestic institutional investor base will help raise long-term finance.

International Private Finance. In the past decade, international investors have increasingly looked toward Africa for high returns on investment. Maintaining sound economic policy and addressing potential destabilizing risks are crucial to continuing to attract these investments.

Remittances.Remittances to Africa amounted to approximately $32 billion (nearly 2 percent of the continent’s GDP) in 2013 and are estimated to rise to $41 billion by 2016. These resources are key to Africa’s development, especially improving the livelihoods of the region’s poor. Yet excess money transfer fees cost the region close to $1.8 billion a year. Increasing the efficiency of money transfers by reducing fees is a crucial step to getting the most value from these important development resources.

"Climate Finance." Providing financial support to promote the use of low-carbon technologies is another major facet of the U.S. Treasury’s strategy that will benefit African countries by increasing the region’s renewable energy supply while also spurring employment opportunities in this sector. Recently, the Obama administration pledged $3 billion to the Green Climate Fund, which will serve as a channel through which private funds can be mobilized to support efforts related to climate adaptation and mitigation.

Aligning U.S. and African Economic Priorities: What Does the U.S. Agenda Mean for Africa?

As noted above, the U.S. Treasury’s international agenda converges with African priorities in several key issue areas. Its agenda is also broadly in line with current thinking on financing for development, which will culminate next year (July 13-16, 2015) when world leaders meet in Addis Ababa, Ethiopia for the third International Conference on Financing for Development. The U.S. agenda’s focus on remittances is apt, especially considering that flows of remittances are increasingly becoming comparable to levels of official development assistance (ODA) on the continent. The U.S. proposal to encourage competition among money transfer operators and strengthen remittance markets can help public and private sector leaders to maximize the value for money of this major development resource. The U.S. focus on climate finance is also a noteworthy area, since recent World Bank data demonstrates that public-private partnerships are driving growth in the renewable electricity sector.

One thing that struck me during Sheets’ remarks, however, was the absence of infrastructure finance in the U.S. Treasury’s priorities. At the 2005 G-8 Gleneagles Summit on development assistance, world powers made a special commitment to financing infrastructure improvements. And given the centrality of improving energy infrastructure in President Obama’s Power Africa initiative, this omission seems to be a significant oversight when it comes to U.S.-Africa policy. On another note, we got some indication of U.S. policy toward the BRICS (Brazil, Russia, India, China and South Africa) Development Bank. Sheets showed some skepticism toward the group and noted that in order to be effective the BRICS Bank needs to (1) show its complementarity and additionally with existing institutions; and (2) needs to include the hard-learned lessons of development finance: good governance, debt sustainability, adequate procurement and addressing environmental issues.

Another issue where the U.S. Treasury can help support U.S.-Africa trade and investment policy is in the area of financial regulation. Indeed, the U.S. dollar remains the centerpiece of global trade. Intra-African trade and the fast-growing trade between China and Africa are typically settled in U.S. dollars. SWIFT figures indicate that about 50 percent of intra-African import and export settlements involve a bank outside Africa. In particular, U.S. dollar clearing banks are becoming more important as trade and investment within Africa (about 23 percent of total trade according to SWIFT data) and with China and other emerging markets is increasing. Know-your-customer (KYC), anti-money laundering and combating financial terrorism (AML/CFT) regulations increase compliance and other transaction costs. At times, foreign banks decide to simply close correspondent accounts with some African banks for fear of the scale of potential fines for sanctions-breaking. Thus, there is room for regulatory cooperation and other policies that can help safeguard the objectives of U.S. financial regulation and, at the same time, help its objective to increase trade and investment with Africa.

Finally, climate finance is definitely an important global issue, and Africa can be at the forefront. Indeed, the International Energy Agency (IEA) forecasts the share of renewables in Africa’s power total capacity to more than double to reach 44 percent by 2040. The choice for African countries to turn to renewable energy is not just about addressing global warming and climate change. It is also about improving energy efficiency and diversifying energy sources and importing new technologies. Ethiopia, no doubt because it is so far less endowed in nonrenewable energy, has made the choice to invest in renewable energy technology such as the Ashegoda wind farm, the Grand Renaissance Dam on the Nile and several geothermal projects. Kenya also has a wind power project on Lake Turkana and is involved in plans for geothermal energy production. Further northwest, Morocco is investing heavily in solar power plants. In fact, recent data on public-private investment from the World Bank indicate that the renewable electricity sector is growing. In 2013, the top deals in sub-Saharan Africa included projects worth $1.6 billion for and open-cycle gas turbine (OCGT) project and a wind farm in South Africa, as well as a $440 million thermal power expansion project in Ghana.

This said, in terms of global warming and climate change, the Growth Commission argues that it makes economic sense for developed countries to bear some of the costs of developing-country investments that would cut carbon emissions to safe levels. Recently, the U.S. and other governments have pledged $10 billion toward the new Green Climate Fund to channel resources for both mitigation and adaptation, and catalyze private sector investment in clean technologies and climate resilience. Going forward, it will be important to not only make sure that the funds pledged are available but to also work with African countries to ensure that the planned climate investment are aligned with the African countries’ overall infrastructure and development strategy.

Authors

The United States plays a leadership role when it comes to framing the agenda on global economic and financial policy, and it is important for African policymakers to be aware of what is at stake for the continent.

Sheets is the main U.S. counterpart of the World Bank and the IMF. Since the U.S is the largest shareholder and practically has veto power in both institutions, the U.S. Treasury’s agenda typically serves as a guide for their strategies. In turn, the IMF and World Bank have immense influence when it comes to low-income African countries. As a result, what Sheets says will help formulate these institutions’ strategy towards Africa. So, I am betting that these issues will become much more important for Africa in the years to come.

Last week, the undersecretary spoke on the six core pillars of the Treasury’s strategy moving forward, including: 1) strengthening and rebalancing global growth; 2) deepening engagement with emerging market giants; 3) framing a resilient global financial system; 4) facilitating access to capital; 5) promoting open trade and investment; and 6) enhancing U.S. leadership at the IMF.

These mutually reinforcing objectives aim to strengthen economic performance at the global level, but also have specific implications for the African continent: Stronger global economic growth helps sustain the current GDP growth many African countries are currently experiencing, boosts financial and investment flows to the continent, and potentially deepens local financial markets. An increasingly resilient international financial system would insulate Africa from disruptive crises and provide a supportive environment for the continent’s growth. Improved U.S. bilateral relations with China could yield a fruitful trilateral partnership with Africa by ensuring complementarity in investments, as both the U.S. and China are increasing their commercial engagement with the continent. Giving a greater voice to emerging markets through reform of the International Monetary Fund (IMF) is also a good step toward improving relations with these countries and supporting the good governance of international institutions.

The U.S. Treasury’s Approach to African Challenges

In addition to these global objectives, in his speech Sheets specifically highlighted African issues two times. First, he named the West African Ebola virus epidemic one of the foremost challenges facing global economic policymakers as they seek to achieve the G-20 Leaders’ objective of “strong, sustainable and balanced global growth.” Second, he identified Africa as one of the focal regions of one of the “core pillars” of the Treasury’s strategy “facilitating access to capital.” Sheets stated:

“Expanding access to financial services for the over 2 billion unbanked people in the world promises to open new possibilities as the financial wherewithal in these population grows. Expanding access to finance and deepening financial markets in Africa, the Middle East and other developing regions will support businesses, empower entrepreneurs, boost household incomes, and ultimately help fuel growth across developing economies. This is why we are working with the G-20 and with other partners to broaden access for developing countries and to make access to capital within these countries more inclusive.”

The Treasury’s focus on expanding access to capital and enhancing capital markets in Africa is a welcome step, as nearly a quarter of adults in sub-Saharan Africa lack access to formal financial services. Moreover, Africa requires substantial inflows of capital to the region in order to finance transformative projects in infrastructure across the continent—estimated to cost $100 billion a year. However, to meet this ambitious target, the U.S. Treasury will need to coordinate with international and African stakeholders to leverage sufficient public and private sector investment and bolster African capital markets.

The U.S. Agenda to Expand Access to Capital and Deepen Capital Markets for Development

The five elements integral to financing the region’s development projects enumerated in Sheets’ speech are:

Blended Finance. Sheets called on multilateral development banks, including the World Bank, to “use their balance sheets to catalyze private investment.” Development finance institutions can help guarantee investments and mitigate risks posed in unstable institutional and economic environments. In doing so, development institutions provide a safety net for private sector investors, which can reduce risks and spur investment. They will need to innovate to come up with new instruments and arrangements that can facilitate private investment in Africa.

Domestic Private Finance. African governments and private sector leaders must collaborate to generate a stable regulatory environment conducive to the growth of financial markets and bolster financial intermediation. Indeed, small and medium enterprise finance is still in short supply. Developing local capital markets and broadening the domestic institutional investor base will help raise long-term finance.

International Private Finance. In the past decade, international investors have increasingly looked toward Africa for high returns on investment. Maintaining sound economic policy and addressing potential destabilizing risks are crucial to continuing to attract these investments.

Remittances.Remittances to Africa amounted to approximately $32 billion (nearly 2 percent of the continent’s GDP) in 2013 and are estimated to rise to $41 billion by 2016. These resources are key to Africa’s development, especially improving the livelihoods of the region’s poor. Yet excess money transfer fees cost the region close to $1.8 billion a year. Increasing the efficiency of money transfers by reducing fees is a crucial step to getting the most value from these important development resources.

"Climate Finance." Providing financial support to promote the use of low-carbon technologies is another major facet of the U.S. Treasury’s strategy that will benefit African countries by increasing the region’s renewable energy supply while also spurring employment opportunities in this sector. Recently, the Obama administration pledged $3 billion to the Green Climate Fund, which will serve as a channel through which private funds can be mobilized to support efforts related to climate adaptation and mitigation.

Aligning U.S. and African Economic Priorities: What Does the U.S. Agenda Mean for Africa?

As noted above, the U.S. Treasury’s international agenda converges with African priorities in several key issue areas. Its agenda is also broadly in line with current thinking on financing for development, which will culminate next year (July 13-16, 2015) when world leaders meet in Addis Ababa, Ethiopia for the third International Conference on Financing for Development. The U.S. agenda’s focus on remittances is apt, especially considering that flows of remittances are increasingly becoming comparable to levels of official development assistance (ODA) on the continent. The U.S. proposal to encourage competition among money transfer operators and strengthen remittance markets can help public and private sector leaders to maximize the value for money of this major development resource. The U.S. focus on climate finance is also a noteworthy area, since recent World Bank data demonstrates that public-private partnerships are driving growth in the renewable electricity sector.

One thing that struck me during Sheets’ remarks, however, was the absence of infrastructure finance in the U.S. Treasury’s priorities. At the 2005 G-8 Gleneagles Summit on development assistance, world powers made a special commitment to financing infrastructure improvements. And given the centrality of improving energy infrastructure in President Obama’s Power Africa initiative, this omission seems to be a significant oversight when it comes to U.S.-Africa policy. On another note, we got some indication of U.S. policy toward the BRICS (Brazil, Russia, India, China and South Africa) Development Bank. Sheets showed some skepticism toward the group and noted that in order to be effective the BRICS Bank needs to (1) show its complementarity and additionally with existing institutions; and (2) needs to include the hard-learned lessons of development finance: good governance, debt sustainability, adequate procurement and addressing environmental issues.

Another issue where the U.S. Treasury can help support U.S.-Africa trade and investment policy is in the area of financial regulation. Indeed, the U.S. dollar remains the centerpiece of global trade. Intra-African trade and the fast-growing trade between China and Africa are typically settled in U.S. dollars. SWIFT figures indicate that about 50 percent of intra-African import and export settlements involve a bank outside Africa. In particular, U.S. dollar clearing banks are becoming more important as trade and investment within Africa (about 23 percent of total trade according to SWIFT data) and with China and other emerging markets is increasing. Know-your-customer (KYC), anti-money laundering and combating financial terrorism (AML/CFT) regulations increase compliance and other transaction costs. At times, foreign banks decide to simply close correspondent accounts with some African banks for fear of the scale of potential fines for sanctions-breaking. Thus, there is room for regulatory cooperation and other policies that can help safeguard the objectives of U.S. financial regulation and, at the same time, help its objective to increase trade and investment with Africa.

Finally, climate finance is definitely an important global issue, and Africa can be at the forefront. Indeed, the International Energy Agency (IEA) forecasts the share of renewables in Africa’s power total capacity to more than double to reach 44 percent by 2040. The choice for African countries to turn to renewable energy is not just about addressing global warming and climate change. It is also about improving energy efficiency and diversifying energy sources and importing new technologies. Ethiopia, no doubt because it is so far less endowed in nonrenewable energy, has made the choice to invest in renewable energy technology such as the Ashegoda wind farm, the Grand Renaissance Dam on the Nile and several geothermal projects. Kenya also has a wind power project on Lake Turkana and is involved in plans for geothermal energy production. Further northwest, Morocco is investing heavily in solar power plants. In fact, recent data on public-private investment from the World Bank indicate that the renewable electricity sector is growing. In 2013, the top deals in sub-Saharan Africa included projects worth $1.6 billion for and open-cycle gas turbine (OCGT) project and a wind farm in South Africa, as well as a $440 million thermal power expansion project in Ghana.

This said, in terms of global warming and climate change, the Growth Commission argues that it makes economic sense for developed countries to bear some of the costs of developing-country investments that would cut carbon emissions to safe levels. Recently, the U.S. and other governments have pledged $10 billion toward the new Green Climate Fund to channel resources for both mitigation and adaptation, and catalyze private sector investment in clean technologies and climate resilience. Going forward, it will be important to not only make sure that the funds pledged are available but to also work with African countries to ensure that the planned climate investment are aligned with the African countries’ overall infrastructure and development strategy.

Last week U.N. Secretary-General Ban Ki-moon issued his long-awaited report, “The Road to Dignity by 2030.” The report frames the beginning of the end-game for negotiations in 2015 on what will replace the Millennium Development Goals (MDGs). It suggests six “essential elements” as a way of simplifying and communicating the 17 goals and many dozen targets recommended by the intergovernmental Open Working Group (OWG).

While many observers hoped the text would somehow prioritize and slim down the comprehensive package crafted as a political compromise by the OWG, Mr. Ban welcomed the outcome and took “positive note” of the General Assembly decision to make it the basis of negotiation. In addition to giving prominence to themes such as justice, dignity and prosperity, he also presents a strong message on the need for a new and ambitious financing strategy that takes note of the business sector’s potential for a more developed monitoring and accountability structure compared to the MDGs. Many countries appreciated the secretary-general’s approach in their first official responses. The months ahead will see how they carry forward the various elements, goals, and targets.

Amidst the policy complexities, it is worth stepping back to consider the nature of the most fundamental high-level political agreements essential to advancing the agenda. As a reference point, the Millennium Development Goals were set in 2000, but only came to life after the March 2002 Monterrey Consensus forged two overarching global deals. One was the agreement that markets are the driver of long-term economic growth, and public sectors have a responsibility to support them. This resolved a decades-long battle over the role of state versus markets. The other was an agreement that developing country governments have primary responsibility for their own destiny, but the poorest countries need active support from the richest countries in order to meet major development goals.

Similarly, over the coming year, the sustainable development agenda can be boiled down to the need for countries to converge around three breakthrough global political agreements.

The first breakthrough agreement is to provide every human being with the minimum basic services required to permit them to participate in and benefit from globalization. These minimum standards—which have been described elsewhere as “leaving no one behind” and “global social floor”—would provide dignity for all, end extreme income poverty and hunger, provide minimum levels of schooling and healthcare, and ensure access to basic infrastructure services like energy, water, road transport and bank accounts. They would eliminate the most pernicious forms of exclusion. They imply a new global social contract based on meeting people’s needs and aspirations, not those of countries.

The second breakthrough agreement is a new global approach to infrastructure—one that ramps up the investments required to boost prosperity, ensure resilience, and reduce global carbon emissions. In dollar terms, infrastructure investments—to build planet-friendly energy networks, transport systems, information highways, and urban habitats—require the most financing in the global sustainable development agenda, estimated at roughly $3 trillion a year in developing countries alone. Most, but not all, of these investments will be funded from domestic savings. Foreign savings will also need to be mobilized, but the current international development finance system falls orders-of-magnitude short in intermediating foreign savings and long-term investments in developing countries. Consider that the World Bank Group’s financing for infrastructure was just $24 billion in 2014, a drop in the bucket of what is required. Moreover, the majority of the world now lives in cities, so a huge share of infrastructure investments need to take place at the municipal level. But there is no systematic approach to helping developing countries’ sub-sovereign entities access finance.

Infrastructure is usually considered to be more a technocratic subject than a topic for global political bargains. But without new agreements at the highest political level, many countries will be unable to meet their sustainable development needs. Most pressingly, in most of the world, low-cost energy is high-carbon energy, and low-carbon remains high-cost. This must change. What can be done? Advanced countries need to develop and support the expansion of new low-carbon technologies, especially for electricity generation, transmission and distribution. They can also help prepare specific projects, as the G-20 Global Infrastructure Hub proposes to do. They can encourage the multilateral institutions they control to lend more for low-carbon infrastructure and provide more guarantees to leverage private capital. Meanwhile developing countries can take on more responsibility for funding infrastructure themselves, which is why the new BRICS bank and the Asia Infrastructure Investment Bank have been created. They can also ensure that infrastructure projects are efficiently planned, get properly used and maintained, avoid corruption, and use high environmental and social standards.

The third breakthrough agreement is about enhanced accountability among governments and industry. There will be no legal international enforcement of the sustainable development goals so—to a vastly greater extent than under the MDGs—countries will need to apply their own specific targets to commonly identified global challenges. The secretary-general has rightly recommended regional peer reviews as one way of holding country governments accountable, but real teeth will only come from a compact between governments and their own citizens.

Businesses, too, need to be held more accountable if the sustainable development goals are to be met. This does not have to be done in a contentious way. Major companies like Unilever and DuPont have pioneered new approaches to long-term, multi-dimensional corporate reporting that already makes management and other stakeholders aware of the social and environmental footprint of their activities. More than 1300 companies have signed on to the Principles for Responsible Investment. From Hong Kong to Johannesburg, many stock exchanges around the world are requiring sustainability reporting from their listed companies, while U.S. regulators are asking companies to report on their sourcing of conflict minerals. Multiple pension funds, especially in Europe, have leveraged their public mandates to apply long-run environmental and social accounting standards.

It is time for a more assertive approach to business accountability. Mr. Ban asks countries to require mandatory sustainability reporting for companies, along with regulatory changes to make sure that profit-maximizing competitive behavior promotes sustainable business activities. In the simplest terms, Coca-Cola will be more willing to implement new reporting standards if PepsiCo and India’s Tata Tea do too.

There will be lots of heated debate over the shape of the post-2015 agenda in coming months. But stepping back from the details, if the process results in an agreement to establish minimum services for humanity, develop new global mechanisms for financing infrastructure, and define new accountability standards for governments and businesses, it would be a dramatic change from business-as-usual. Mr. Ban’s report challenges countries to forge fast consensus on these breakthrough areas for agreement.

Authors

Last week U.N. Secretary-General Ban Ki-moon issued his long-awaited report, “The Road to Dignity by 2030.” The report frames the beginning of the end-game for negotiations in 2015 on what will replace the Millennium Development Goals (MDGs). It suggests six “essential elements” as a way of simplifying and communicating the 17 goals and many dozen targets recommended by the intergovernmental Open Working Group (OWG).

While many observers hoped the text would somehow prioritize and slim down the comprehensive package crafted as a political compromise by the OWG, Mr. Ban welcomed the outcome and took “positive note” of the General Assembly decision to make it the basis of negotiation. In addition to giving prominence to themes such as justice, dignity and prosperity, he also presents a strong message on the need for a new and ambitious financing strategy that takes note of the business sector’s potential for a more developed monitoring and accountability structure compared to the MDGs. Many countries appreciated the secretary-general’s approach in their first official responses. The months ahead will see how they carry forward the various elements, goals, and targets.

Amidst the policy complexities, it is worth stepping back to consider the nature of the most fundamental high-level political agreements essential to advancing the agenda. As a reference point, the Millennium Development Goals were set in 2000, but only came to life after the March 2002 Monterrey Consensus forged two overarching global deals. One was the agreement that markets are the driver of long-term economic growth, and public sectors have a responsibility to support them. This resolved a decades-long battle over the role of state versus markets. The other was an agreement that developing country governments have primary responsibility for their own destiny, but the poorest countries need active support from the richest countries in order to meet major development goals.

Similarly, over the coming year, the sustainable development agenda can be boiled down to the need for countries to converge around three breakthrough global political agreements.

The first breakthrough agreement is to provide every human being with the minimum basic services required to permit them to participate in and benefit from globalization. These minimum standards—which have been described elsewhere as “leaving no one behind” and “global social floor”—would provide dignity for all, end extreme income poverty and hunger, provide minimum levels of schooling and healthcare, and ensure access to basic infrastructure services like energy, water, road transport and bank accounts. They would eliminate the most pernicious forms of exclusion. They imply a new global social contract based on meeting people’s needs and aspirations, not those of countries.

The second breakthrough agreement is a new global approach to infrastructure—one that ramps up the investments required to boost prosperity, ensure resilience, and reduce global carbon emissions. In dollar terms, infrastructure investments—to build planet-friendly energy networks, transport systems, information highways, and urban habitats—require the most financing in the global sustainable development agenda, estimated at roughly $3 trillion a year in developing countries alone. Most, but not all, of these investments will be funded from domestic savings. Foreign savings will also need to be mobilized, but the current international development finance system falls orders-of-magnitude short in intermediating foreign savings and long-term investments in developing countries. Consider that the World Bank Group’s financing for infrastructure was just $24 billion in 2014, a drop in the bucket of what is required. Moreover, the majority of the world now lives in cities, so a huge share of infrastructure investments need to take place at the municipal level. But there is no systematic approach to helping developing countries’ sub-sovereign entities access finance.

Infrastructure is usually considered to be more a technocratic subject than a topic for global political bargains. But without new agreements at the highest political level, many countries will be unable to meet their sustainable development needs. Most pressingly, in most of the world, low-cost energy is high-carbon energy, and low-carbon remains high-cost. This must change. What can be done? Advanced countries need to develop and support the expansion of new low-carbon technologies, especially for electricity generation, transmission and distribution. They can also help prepare specific projects, as the G-20 Global Infrastructure Hub proposes to do. They can encourage the multilateral institutions they control to lend more for low-carbon infrastructure and provide more guarantees to leverage private capital. Meanwhile developing countries can take on more responsibility for funding infrastructure themselves, which is why the new BRICS bank and the Asia Infrastructure Investment Bank have been created. They can also ensure that infrastructure projects are efficiently planned, get properly used and maintained, avoid corruption, and use high environmental and social standards.

The third breakthrough agreement is about enhanced accountability among governments and industry. There will be no legal international enforcement of the sustainable development goals so—to a vastly greater extent than under the MDGs—countries will need to apply their own specific targets to commonly identified global challenges. The secretary-general has rightly recommended regional peer reviews as one way of holding country governments accountable, but real teeth will only come from a compact between governments and their own citizens.

Businesses, too, need to be held more accountable if the sustainable development goals are to be met. This does not have to be done in a contentious way. Major companies like Unilever and DuPont have pioneered new approaches to long-term, multi-dimensional corporate reporting that already makes management and other stakeholders aware of the social and environmental footprint of their activities. More than 1300 companies have signed on to the Principles for Responsible Investment. From Hong Kong to Johannesburg, many stock exchanges around the world are requiring sustainability reporting from their listed companies, while U.S. regulators are asking companies to report on their sourcing of conflict minerals. Multiple pension funds, especially in Europe, have leveraged their public mandates to apply long-run environmental and social accounting standards.

It is time for a more assertive approach to business accountability. Mr. Ban asks countries to require mandatory sustainability reporting for companies, along with regulatory changes to make sure that profit-maximizing competitive behavior promotes sustainable business activities. In the simplest terms, Coca-Cola will be more willing to implement new reporting standards if PepsiCo and India’s Tata Tea do too.

There will be lots of heated debate over the shape of the post-2015 agenda in coming months. But stepping back from the details, if the process results in an agreement to establish minimum services for humanity, develop new global mechanisms for financing infrastructure, and define new accountability standards for governments and businesses, it would be a dramatic change from business-as-usual. Mr. Ban’s report challenges countries to forge fast consensus on these breakthrough areas for agreement.

Authors

]]>
http://www.brookings.edu/blogs/africa-in-focus/posts/2014/10/10-world-bank-africa-growth-kenyatta-nigeria-oil-copley?rssid=world+bank{80E64D38-E90D-452E-BC75-B679ED2CF67B}http://webfeeds.brookings.edu/~/76415215/0/brookingsrss/topics/worldbank~Africa-in-the-News-World-Bank-Predicts-Rise-in-African-Growth-Despite-Ebola-Impact-Kenyan-President-Kenyatta-Goes-to-The-Hague-Nigerian-Oil-Exports-to-the-United-States-CeaseAfrica in the News: World Bank Predicts Rise in African Growth 2015-2017, Despite Ebola Impact; Kenyan President Kenyatta Goes to The Hague; Nigerian Oil Exports to the United States Cease

World Bank Report Foresees Increase in Economic Growth for Africa in 2015-2017

On Tuesday, the World Bank released its latest issue of Africa’s Pulse—a biannual publication that highlights the most recent data and analysis regarding economic trends in Africa—which projected robust African GDP growth in the coming years, in contrast to weak global growth. According to the report, sub-Saharan African economies are expected to expand by 5.2 percent in 2015 and 2016 and 5.3 percent in 2017—up from 4.6 percent in 2014. The heightened growth is attributed to a confluence of factors, including a relative decline in violence from previous years, improvements in political stability and the influx of investors attracted by the possibility of high returns by the continent. However, the report also recognizes the detrimental impacts of Ebola, terrorist groups such as Boko Haram and Al-Shabab, fiscal deficits and a decline in Chinese demand for African commodities, which could stifle growth if not effectively managed.

Furthermore, the report emphasized that, in spite of sub-Saharan Africa’s growth, it is “lagging sharply in achieving the Millennium Development Goals (MDGs); for example, the region has achieved only a third of the poverty target of halving the proportion of people living under $1.25 a day, while globally this target has already been met.”

Authors

Amy Copley

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Fri, 10 Oct 2014 14:10:00 -0400Amy Copley

World Bank Report Foresees Increase in Economic Growth for Africa in 2015-2017

On Tuesday, the World Bank released its latest issue of Africa’s Pulse—a biannual publication that highlights the most recent data and analysis regarding economic trends in Africa—which projected robust African GDP growth in the coming years, in contrast to weak global growth. According to the report, sub-Saharan African economies are expected to expand by 5.2 percent in 2015 and 2016 and 5.3 percent in 2017—up from 4.6 percent in 2014. The heightened growth is attributed to a confluence of factors, including a relative decline in violence from previous years, improvements in political stability and the influx of investors attracted by the possibility of high returns by the continent. However, the report also recognizes the detrimental impacts of Ebola, terrorist groups such as Boko Haram and Al-Shabab, fiscal deficits and a decline in Chinese demand for African commodities, which could stifle growth if not effectively managed.

Furthermore, the report emphasized that, in spite of sub-Saharan Africa’s growth, it is “lagging sharply in achieving the Millennium Development Goals (MDGs); for example, the region has achieved only a third of the poverty target of halving the proportion of people living under $1.25 a day, while globally this target has already been met.”

Earlier this week, the World Bank published its latest estimate of global poverty, reporting that 1.01 billion people lived under $1.25 a day in 2011. Such estimates typically receive a good deal of attention and this time is likely to be no different. A goal to end extreme poverty is expected to feature as the cornerstone of a successor agenda to the Millennium Development Goals. In theory, the new poverty numbers should give a clear indication of how far we stand away from that mark, which is crucial to assessing the goal’s feasibility. Yet, in our view, the new poverty estimate fails to do this.

We are pleased to see global poverty numbers receiving greater attention. Ending extreme poverty is not the endgame of development, nor does the simple indicator of income poverty capture all aspects of well-being, but it remains a communicable and critical measure of human progress.

We also commend the World Bank for adopting its own institutional target to reduce the global poverty rate to 3 percent by 2030, and for thinking seriously about how poverty data can be improved. The World Bank, more than any other institution, understands the conceptual and empirical issues involved in monitoring poverty, as demonstrated in yesterday’s release of an impressive policy research report.

One change already in place is the bank’s commitment to report on progress against global poverty on an annual basis, where previously such updates only occurred around every 3 years. This commitment was made by President Jim Kim at his Georgetown speech in April 2013 when the bank’s “twin goals” were first unveiled. Updating global estimates every year means that new information can more rapidly inform and improve our understanding.

A good example of this is provided by India. Until Wednesday, the most recent global poverty estimates drew from India’s 2009-10 National Sample Survey, which was conducted at the height of a drought. That survey gave the impression that poverty reduction had been sluggish over the preceding 5 years, despite this being a period of record economic growth in the country. This week’s new estimates use data from India’s 2011-12 National Sample Survey, conducted when conditions were more representative. It reports about 100 million less people living under $1.25. One result is that the oft-repeated claim that the number of extreme poor living in India exceeds that in Africa can finally be put to rest. (As a counterexample, we are baffled by the bank’s decision to continue to use Nigeria’s 2010 Harmonized Living Standards Survey whose data are riddled with inconsistencies, when more recent estimates from the 2011 and 2013 General Household Survey Panel are available. Whereas the 2010 survey reports a poverty rate of over 60 percent, the more recent surveys suggest the rate is closer to 30 percent.)

At the same time, it is hard to come away from the new global estimates without feeling underwhelmed and frustrated by their limitations.

First, it is disappointing to see that the World Bank continues to generate poverty estimates based on 2005 Purchasing Power Parity (PPP) data rather than the new 2011 PPP data published earlier this year. As we pointed out in May, the new PPPs suggest that prices in developing countries are far lower than previously thought, which has a dramatic bearing on poverty numbers.

The bank has put off incorporating the new price data into its poverty calculations until it has had time to explore the changes and their causes more carefully. Such research is undoubtedly of value. Yet everything we know about the design and implementation of the 2011 International Comparison Program (the source of the new PPP data) suggests it is superior to the previous round. Choosing to delay the adoption of the new PPPs means consciously opting to employ inferior data. It also effectively puts in limbo the bank’s institutional poverty goal (including its interim 2020 target to reduce the global poverty rate to 9 percent) and more importantly, the forging of the post-2015 development agenda, which is actively being negotiated.

There is a second respect in which the World Bank’s new estimates have the feeling of immediately being old: we are furnished with global poverty estimates for 2011 as we near the end of 2014.

There is no reason why the bank could not generate provisional poverty estimates for the current year that can later be revised as and when additional data comes in. This is the approach taken with almost every other time-series of important economic data. World Bank country economists are well positioned to generate such estimates and in fact have done so in some bank regions for some time. Alongside its release of 2011 global poverty estimates, the bank has published projections of poverty for 2015 and other outer years. It is absurd that the bank is willing to provide estimates of poverty in the past and poverty in the future, while refusing to estimate poverty today.

One of the innovations introduced by President Kim is the creation of a “Delivery Unit” specifically charged with generating real-time data on key performance indicators. Shouldn’t poverty data be held to the same standard?

Finally, it is disappointing that the World Bank chose to wait so long before updating PovcalNet: the online repository of survey data which serves as the source of global poverty estimates. This update includes the addition of data from several dozen national household surveys that the bank has obtained since the last revision 18 months ago.

In recent years, PovcalNet has become an indispensable resource for poverty researchers around the world; indeed it has played its part in a mini-revolution within development research, in which more open data and social media have reduced barriers and increased accountability. The delay in updating the public version of PovcalNet, while bank staff had access to an updated internal version, certainly goes against the bank’s claim to be a leader in the open data movement.

The World Bank is charged with promoting evidence for policymaking, not data for economic historians. Yet its institutional culture seems to steer it more towards the latter than the former. As the steward of global poverty data, this has to change.

Authors

Earlier this week, the World Bank published its latest estimate of global poverty, reporting that 1.01 billion people lived under $1.25 a day in 2011. Such estimates typically receive a good deal of attention and this time is likely to be no different. A goal to end extreme poverty is expected to feature as the cornerstone of a successor agenda to the Millennium Development Goals. In theory, the new poverty numbers should give a clear indication of how far we stand away from that mark, which is crucial to assessing the goal’s feasibility. Yet, in our view, the new poverty estimate fails to do this.

We are pleased to see global poverty numbers receiving greater attention. Ending extreme poverty is not the endgame of development, nor does the simple indicator of income poverty capture all aspects of well-being, but it remains a communicable and critical measure of human progress.

We also commend the World Bank for adopting its own institutional target to reduce the global poverty rate to 3 percent by 2030, and for thinking seriously about how poverty data can be improved. The World Bank, more than any other institution, understands the conceptual and empirical issues involved in monitoring poverty, as demonstrated in yesterday’s release of an impressive policy research report.

One change already in place is the bank’s commitment to report on progress against global poverty on an annual basis, where previously such updates only occurred around every 3 years. This commitment was made by President Jim Kim at his Georgetown speech in April 2013 when the bank’s “twin goals” were first unveiled. Updating global estimates every year means that new information can more rapidly inform and improve our understanding.

A good example of this is provided by India. Until Wednesday, the most recent global poverty estimates drew from India’s 2009-10 National Sample Survey, which was conducted at the height of a drought. That survey gave the impression that poverty reduction had been sluggish over the preceding 5 years, despite this being a period of record economic growth in the country. This week’s new estimates use data from India’s 2011-12 National Sample Survey, conducted when conditions were more representative. It reports about 100 million less people living under $1.25. One result is that the oft-repeated claim that the number of extreme poor living in India exceeds that in Africa can finally be put to rest. (As a counterexample, we are baffled by the bank’s decision to continue to use Nigeria’s 2010 Harmonized Living Standards Survey whose data are riddled with inconsistencies, when more recent estimates from the 2011 and 2013 General Household Survey Panel are available. Whereas the 2010 survey reports a poverty rate of over 60 percent, the more recent surveys suggest the rate is closer to 30 percent.)

At the same time, it is hard to come away from the new global estimates without feeling underwhelmed and frustrated by their limitations.

First, it is disappointing to see that the World Bank continues to generate poverty estimates based on 2005 Purchasing Power Parity (PPP) data rather than the new 2011 PPP data published earlier this year. As we pointed out in May, the new PPPs suggest that prices in developing countries are far lower than previously thought, which has a dramatic bearing on poverty numbers.

The bank has put off incorporating the new price data into its poverty calculations until it has had time to explore the changes and their causes more carefully. Such research is undoubtedly of value. Yet everything we know about the design and implementation of the 2011 International Comparison Program (the source of the new PPP data) suggests it is superior to the previous round. Choosing to delay the adoption of the new PPPs means consciously opting to employ inferior data. It also effectively puts in limbo the bank’s institutional poverty goal (including its interim 2020 target to reduce the global poverty rate to 9 percent) and more importantly, the forging of the post-2015 development agenda, which is actively being negotiated.

There is a second respect in which the World Bank’s new estimates have the feeling of immediately being old: we are furnished with global poverty estimates for 2011 as we near the end of 2014.

There is no reason why the bank could not generate provisional poverty estimates for the current year that can later be revised as and when additional data comes in. This is the approach taken with almost every other time-series of important economic data. World Bank country economists are well positioned to generate such estimates and in fact have done so in some bank regions for some time. Alongside its release of 2011 global poverty estimates, the bank has published projections of poverty for 2015 and other outer years. It is absurd that the bank is willing to provide estimates of poverty in the past and poverty in the future, while refusing to estimate poverty today.

One of the innovations introduced by President Kim is the creation of a “Delivery Unit” specifically charged with generating real-time data on key performance indicators. Shouldn’t poverty data be held to the same standard?

Finally, it is disappointing that the World Bank chose to wait so long before updating PovcalNet: the online repository of survey data which serves as the source of global poverty estimates. This update includes the addition of data from several dozen national household surveys that the bank has obtained since the last revision 18 months ago.

In recent years, PovcalNet has become an indispensable resource for poverty researchers around the world; indeed it has played its part in a mini-revolution within development research, in which more open data and social media have reduced barriers and increased accountability. The delay in updating the public version of PovcalNet, while bank staff had access to an updated internal version, certainly goes against the bank’s claim to be a leader in the open data movement.

The World Bank is charged with promoting evidence for policymaking, not data for economic historians. Yet its institutional culture seems to steer it more towards the latter than the former. As the steward of global poverty data, this has to change.

Authors

]]>
http://www.brookings.edu/research/papers/2014/07/coal-fired-power-plants-middle-income-countries-world-bank-purvis?rssid=world+bank{08E0613A-A31C-46C3-889F-DEEF1B83FB2B}http://webfeeds.brookings.edu/~/69293136/0/brookingsrss/topics/worldbank~Retrofitting-CoalFired-Power-Plants-in-MiddleIncome-Countries-What-Role-for-the-World-BankRetrofitting Coal-Fired Power Plants in Middle-Income Countries: What Role for the World Bank?

In July 2013, the World Bank decided to phase-out lending for new coal-fired power plants in middle-income
countries, except in rare circumstances where no financially feasible alternatives to coal exist. This decision was
made for a combination of reasons including concerns about local air pollution and global climate change, as well
as evidence that these projects have little trouble attracting private capital without World Bank involvement. Now, policymakers are considering whether the World Bank’s policy should also cover projects designed to
retrofit existing coal-fired power plants in middle-income countries by adding scrubbers and other technologies
that increase efficiency and reduce air pollution.

There are several fundamental questions underlying this debate: Is financing coal power plant retrofits a good
use of World Bank resources? If so, should the World Bank insist on the use of best available technologies when
it finances these retrofits? These questions are vitally important, as retrofit technologies are designed to minimize
toxic air pollutants, including soot and smog, which are both dangerous for human health and the world’s
climate. Older coal plants without retrofit technologies are less efficient, and emit more pollutants per unit of
coal burned than those with retrofits applied. Evidence shows that soot and smog can cause respiratory illness
and asthma, especially in children and elderly people, and can diminish local agricultural production by reducing
sunlight. Furthermore, in many countries coal plants are the single largest source of carbon dioxide emissions
driving climate change.

To help inform the policy debate, this analysis surveys the technologies in use in more than 2,000 coal-fired
power plants currently in operation, under construction, or planned in middle-income countries. The findings
reveal that roughly 70 percent of these power plants rely on old, inefficient technologies. Retrofitting these
plants would reduce pollution, increase efficiency and save lives. In middle-income countries that do not mandate
coal retrofits, the World Bank could play a helpful role in financing those improvements, particularly as part
of broader policy reforms designed to reduce climate pollution and increase efficiency across the power sector.

Importantly, however, the data also show that important qualifications should be made. First, because coal is a
major source of greenhouse gas emissions and retrofits are likely to keep coal plants operating longer, the World
Bank should insist that retrofit projects occur within a context of national and local policy reforms designed
to abate greenhouse gas pollution. Toward this end, the World Bank should continue to help countries build
capacity to adopt and enforce climate pollution controls and other offsetting actions and policies. Second, the
World Bank should insist that projects it finances use best available pollution control technologies. Already, the
substantial majority of coal retrofits completed to date in middle-income countries have used best available
technologies. These retrofits were almost universally financed exclusively by private capital. The World Bank
should not use its capital to support inferior retrofit technologies that are below the standards already adopted
by the private sector in middle-income countries.

Downloads

Authors

In July 2013, the World Bank decided to phase-out lending for new coal-fired power plants in middle-income
countries, except in rare circumstances where no financially feasible alternatives to coal exist. This decision was
made for a combination of reasons including concerns about local air pollution and global climate change, as well
as evidence that these projects have little trouble attracting private capital without World Bank involvement. Now, policymakers are considering whether the World Bank’s policy should also cover projects designed to
retrofit existing coal-fired power plants in middle-income countries by adding scrubbers and other technologies
that increase efficiency and reduce air pollution.

There are several fundamental questions underlying this debate: Is financing coal power plant retrofits a good
use of World Bank resources? If so, should the World Bank insist on the use of best available technologies when
it finances these retrofits? These questions are vitally important, as retrofit technologies are designed to minimize
toxic air pollutants, including soot and smog, which are both dangerous for human health and the world’s
climate. Older coal plants without retrofit technologies are less efficient, and emit more pollutants per unit of
coal burned than those with retrofits applied. Evidence shows that soot and smog can cause respiratory illness
and asthma, especially in children and elderly people, and can diminish local agricultural production by reducing
sunlight. Furthermore, in many countries coal plants are the single largest source of carbon dioxide emissions
driving climate change.

To help inform the policy debate, this analysis surveys the technologies in use in more than 2,000 coal-fired
power plants currently in operation, under construction, or planned in middle-income countries. The findings
reveal that roughly 70 percent of these power plants rely on old, inefficient technologies. Retrofitting these
plants would reduce pollution, increase efficiency and save lives. In middle-income countries that do not mandate
coal retrofits, the World Bank could play a helpful role in financing those improvements, particularly as part
of broader policy reforms designed to reduce climate pollution and increase efficiency across the power sector.

Importantly, however, the data also show that important qualifications should be made. First, because coal is a
major source of greenhouse gas emissions and retrofits are likely to keep coal plants operating longer, the World
Bank should insist that retrofit projects occur within a context of national and local policy reforms designed
to abate greenhouse gas pollution. Toward this end, the World Bank should continue to help countries build
capacity to adopt and enforce climate pollution controls and other offsetting actions and policies. Second, the
World Bank should insist that projects it finances use best available pollution control technologies. Already, the
substantial majority of coal retrofits completed to date in middle-income countries have used best available
technologies. These retrofits were almost universally financed exclusively by private capital. The World Bank
should not use its capital to support inferior retrofit technologies that are below the standards already adopted
by the private sector in middle-income countries.

Downloads

Authors

]]>
http://www.brookings.edu/blogs/up-front/posts/2014/05/05-data-extreme-poverty-chandy-kharas?rssid=world+bank{4C4F4A3E-8868-47C4-88DE-2410EC8144D7}http://webfeeds.brookings.edu/~/66357467/0/brookingsrss/topics/worldbank~What-Do-New-Price-Data-Mean-for-the-Goal-of-Ending-Extreme-PovertyWhat Do New Price Data Mean for the Goal of Ending Extreme Poverty?

Every country in the world has a poverty line—a standard of living below which its citizens are considered poor. Typically, the richer the country, the higher the poverty line is set. The average poverty line of the poorest 15 countries in the world is used to define the global extreme poverty line—a minimum standard of living that everyone should be able to surpass. In 2005, this global poverty line was set at $1.25 per person per day. The Millennium Development Goals set out to halve the share of people living below this global minimum by 2015, and the successor agreement on sustainable development goals promises to finish the job and end extreme poverty everywhere by 2030.

How feasible is the goal of ending extreme poverty, and where is poverty concentrated? Our understanding of these issues has just been jolted by new data on prices (known as Purchasing Power Parities) for goods and services in every country in the world.

Prices are important for determining the number of poor people because when prices are low, households can afford to buy more. Price levels are also important in comparing poverty across countries. If two households in two countries have the same income levels using market exchange rates, the household in the country with lower prices will have a higher standard of living.

With the new price data now available, two big adjustments must be made to previous estimates of global poverty. First, the purchasing power of each household in every country must be reassessed, based on the new prices. Second, the global poverty line must be recomputed so that it represents roughly the same standard of living as it did before, equivalent to the poverty lines of the world’s poorest countries.

The new price data come from the International Comparison Program—perhaps the largest statistical exercise ever undertaken, involving surveys of prices for hundreds of goods and services in nearly 200 countries. The program estimates prices for 2011, and include many methodological and operational improvements on the 2005 round.

Table 1 summarizes how our understanding of the size and location of extreme poverty in 2010—the most recent year for which official global poverty estimates are available—might change as a result of the new price data. As a point of reference, column A reproduces official estimates, which use relative prices from the 2005 survey round and are updated for local inflation. This is the basis for the prevailing view that 1.2 billion people or 20.6 percent of the developing world lives in extreme poverty, with almost two-thirds of those in Asia.

Table 1.

Column B provides revised estimates in which the purchasing power of households is updated using the new price level data for 2011. This shows that the number of people living below $1.25 a day (measured in 2005 dollars) has been revised down to under 600 million because prices have been found to be much lower in most countries than was previously thought.

However, recall that the global extreme poverty line does not reflect a fixed level of dollar consumption power, but is anchored to a level of consumption power set in the developing world—the average value of national poverty lines in the world’s poorest countries. In column C we attempt to recalibrate the poverty line so that it represents the same living standards as it did previously. We cannot quantify this change precisely at present but our best estimate is that this would bring the global extreme poverty line to $1.55 (again measured in 2005 dollars). With this correction, the total number of extreme poor would be just shy of a billion.

There is one more adjustment to make. India and Nigeria are respectively home to the largest and third largest populations of extreme poverty in the world, so these countries are critical to global poverty numbers. They are also countries where existing global poverty estimates rely on problematic data. We replace India’s 2009/10 living standards survey, which was conducted at the height of an extreme drought, with a 2011/12 survey conducted when conditions were more representative. This lowers the estimate of poor people in India by 50 million. Similarly, we replace Nigeria’s 2009 survey, the results of which are riddled with inconsistencies, with a more reliable 2011 survey. This lowers the estimate of the number of poor people in Nigeria by 25 million. Column D presents our final results for which the global number of extreme poor is 870 million—a reduction of 343 million from official estimates—or 14.8 percent of the developing world.

The changes in the new estimates of extreme poverty are not equal across countries. Table 2 identifies those countries that have undergone the biggest revisions in extreme poverty based on our calculations. In terms of numbers of people, India stands out. Its population of extreme poor drops by 220 million, accounting for two-thirds of the total global reduction. Other large Asian countries also seem to have fewer poor people than was previously thought. If we instead focus on changes in countries’ poverty rates—the population share that is classified as extremely poor—then the breadth of change across different countries becomes apparent. Thirteen countries, of which seven are African, see their poverty rates revised downward by more than 10 percentage points, with the largest downward revision in Nigeria. At the other end of the spectrum, Chad sees its extreme poverty rate ratcheted up by 32 percentage points.

Table 2.

Table 3 shows how the composition of the global extreme poor has changed according to various country groupings. Among regions, sub-Saharan Africa’s share has risen most prominently, despite a downward revision in its poverty rate. The share of the world’s extreme poor situated in low income countries has risen, as has the portion living in fragile states.

Table 3.

The changes in poverty numbers that we’ve described are profound. The effect of previous rounds of the International Comparison Program on global poverty estimates have been compared to earthquakes and based on our calculations, this round seems no less dramatic. What does it mean for the movement to end extreme poverty?

More achievable. The goal to end extreme poverty within a generation is noble and exhilarating. However, many commentators and experts have, in good faith, questioned whether it is feasible. For our part, we believe the goal is highly ambitious but eminently achievable. The new price data reinforce this belief, and indicate that we are even closer to the finish line.

More focus. With a smaller number of people estimated to be in extreme poverty, global poverty reduction efforts must become more targeted if they are to be effective. Revisions to country estimates and the composition of the global poor should inform these efforts. This suggests that greater focus should be given to low income countries, sub-Saharan Africa, and fragile states—three groups whose share of global poverty has risen in the new calculations.

More humility. Although the new round of price comparisons has been carried out with enormous care, the size of the changes are a reminder that while our knowledge about the number of people living in extreme poverty and their location is improving, it remains far from complete. Global poverty estimates are subject to large error. Furthermore, previous research of ours has shown that there is a large concentration of people whose living standards almost exactly match the global poverty line; this means that even small changes in the underlying data are likely to bring about large changes in poverty estimates. Thankfully, the International Comparison Program is moving to a rolling system for updating relative prices within the developing world, so this should be the last earthquake of this scale. We look forward to the World Bank’s official update of global poverty estimates to account for the new price data in the coming months. Yet even after this update, we should be more humble when discussing global poverty and the language we use ought to reflect this. The empirical foundation for poverty numbers is not as solid as it should be given the gravity of the issue and our common interest in improving the lives of the poorest people on the planet.

Authors

Every country in the world has a poverty line—a standard of living below which its citizens are considered poor. Typically, the richer the country, the higher the poverty line is set. The average poverty line of the poorest 15 countries in the world is used to define the global extreme poverty line—a minimum standard of living that everyone should be able to surpass. In 2005, this global poverty line was set at $1.25 per person per day. The Millennium Development Goals set out to halve the share of people living below this global minimum by 2015, and the successor agreement on sustainable development goals promises to finish the job and end extreme poverty everywhere by 2030.

How feasible is the goal of ending extreme poverty, and where is poverty concentrated? Our understanding of these issues has just been jolted by new data on prices (known as Purchasing Power Parities) for goods and services in every country in the world.

Prices are important for determining the number of poor people because when prices are low, households can afford to buy more. Price levels are also important in comparing poverty across countries. If two households in two countries have the same income levels using market exchange rates, the household in the country with lower prices will have a higher standard of living.

With the new price data now available, two big adjustments must be made to previous estimates of global poverty. First, the purchasing power of each household in every country must be reassessed, based on the new prices. Second, the global poverty line must be recomputed so that it represents roughly the same standard of living as it did before, equivalent to the poverty lines of the world’s poorest countries.

The new price data come from the International Comparison Program—perhaps the largest statistical exercise ever undertaken, involving surveys of prices for hundreds of goods and services in nearly 200 countries. The program estimates prices for 2011, and include many methodological and operational improvements on the 2005 round.

Table 1 summarizes how our understanding of the size and location of extreme poverty in 2010—the most recent year for which official global poverty estimates are available—might change as a result of the new price data. As a point of reference, column A reproduces official estimates, which use relative prices from the 2005 survey round and are updated for local inflation. This is the basis for the prevailing view that 1.2 billion people or 20.6 percent of the developing world lives in extreme poverty, with almost two-thirds of those in Asia.

Table 1.

Column B provides revised estimates in which the purchasing power of households is updated using the new price level data for 2011. This shows that the number of people living below $1.25 a day (measured in 2005 dollars) has been revised down to under 600 million because prices have been found to be much lower in most countries than was previously thought.

However, recall that the global extreme poverty line does not reflect a fixed level of dollar consumption power, but is anchored to a level of consumption power set in the developing world—the average value of national poverty lines in the world’s poorest countries. In column C we attempt to recalibrate the poverty line so that it represents the same living standards as it did previously. We cannot quantify this change precisely at present but our best estimate is that this would bring the global extreme poverty line to $1.55 (again measured in 2005 dollars). With this correction, the total number of extreme poor would be just shy of a billion.

There is one more adjustment to make. India and Nigeria are respectively home to the largest and third largest populations of extreme poverty in the world, so these countries are critical to global poverty numbers. They are also countries where existing global poverty estimates rely on problematic data. We replace India’s 2009/10 living standards survey, which was conducted at the height of an extreme drought, with a 2011/12 survey conducted when conditions were more representative. This lowers the estimate of poor people in India by 50 million. Similarly, we replace Nigeria’s 2009 survey, the results of which are riddled with inconsistencies, with a more reliable 2011 survey. This lowers the estimate of the number of poor people in Nigeria by 25 million. Column D presents our final results for which the global number of extreme poor is 870 million—a reduction of 343 million from official estimates—or 14.8 percent of the developing world.

The changes in the new estimates of extreme poverty are not equal across countries. Table 2 identifies those countries that have undergone the biggest revisions in extreme poverty based on our calculations. In terms of numbers of people, India stands out. Its population of extreme poor drops by 220 million, accounting for two-thirds of the total global reduction. Other large Asian countries also seem to have fewer poor people than was previously thought. If we instead focus on changes in countries’ poverty rates—the population share that is classified as extremely poor—then the breadth of change across different countries becomes apparent. Thirteen countries, of which seven are African, see their poverty rates revised downward by more than 10 percentage points, with the largest downward revision in Nigeria. At the other end of the spectrum, Chad sees its extreme poverty rate ratcheted up by 32 percentage points.

Table 2.

Table 3 shows how the composition of the global extreme poor has changed according to various country groupings. Among regions, sub-Saharan Africa’s share has risen most prominently, despite a downward revision in its poverty rate. The share of the world’s extreme poor situated in low income countries has risen, as has the portion living in fragile states.

Table 3.

The changes in poverty numbers that we’ve described are profound. The effect of previous rounds of the International Comparison Program on global poverty estimates have been compared to earthquakes and based on our calculations, this round seems no less dramatic. What does it mean for the movement to end extreme poverty?

More achievable. The goal to end extreme poverty within a generation is noble and exhilarating. However, many commentators and experts have, in good faith, questioned whether it is feasible. For our part, we believe the goal is highly ambitious but eminently achievable. The new price data reinforce this belief, and indicate that we are even closer to the finish line.

More focus. With a smaller number of people estimated to be in extreme poverty, global poverty reduction efforts must become more targeted if they are to be effective. Revisions to country estimates and the composition of the global poor should inform these efforts. This suggests that greater focus should be given to low income countries, sub-Saharan Africa, and fragile states—three groups whose share of global poverty has risen in the new calculations.

More humility. Although the new round of price comparisons has been carried out with enormous care, the size of the changes are a reminder that while our knowledge about the number of people living in extreme poverty and their location is improving, it remains far from complete. Global poverty estimates are subject to large error. Furthermore, previous research of ours has shown that there is a large concentration of people whose living standards almost exactly match the global poverty line; this means that even small changes in the underlying data are likely to bring about large changes in poverty estimates. Thankfully, the International Comparison Program is moving to a rolling system for updating relative prices within the developing world, so this should be the last earthquake of this scale. We look forward to the World Bank’s official update of global poverty estimates to account for the new price data in the coming months. Yet even after this update, we should be more humble when discussing global poverty and the language we use ought to reflect this. The empirical foundation for poverty numbers is not as solid as it should be given the gravity of the issue and our common interest in improving the lives of the poorest people on the planet.

Editor's Note: In an interview with the Council on Foreign Relations, Steven Pifer discusses the challenges that face the interim Ukrainian government and the threat that Russia poses to Ukraine's stability and unity.

Steven Pifer, a former U.S. ambassador to Ukraine, says "this weekend's actions do not augur well" for scheduled talks in Geneva this Thursday, where diplomats from the United States, EU, Russia, and Ukraine will attempt to negotiate an end to the Ukraine crisis. While Pifer believes that granting more local autonomy to the eastern regions would make for more "effective, efficient, and accountable governance," he stresses that pro-Russian separatists are "talking about a lot more than local power." As for Russia's designs on Ukraine, Pifer says that they encompass more than Crimea. "The fact that Putin has Crimea now doesn't mean that his larger goal, which is to prevent Ukrainians from getting too close to the EU, isn't still very much in play," he says.

Council on Foreign Relations: Pro-Russian forces continued to seize buildings and police headquarters in eastern Ukraine over the weekend. What is the impact of these events on the morale of the pro-Ukrainian supporters?

Steven Pifer: There is little doubt that the recent armed seizures of buildings in eastern Ukraine were instigated by Moscow. I see this as part of Russia's effort to destabilize Ukraine. Those actions put the acting Ukrainian government in an increasingly sharp dilemma: Does Kiev take back the buildings, which would run a risk of bloodshed and might provide a pretext for Russian military action? Or does Kiev sit back as the number of seizures increases? The acting government may conclude that it has to do something.

CFR: Ukraine's interim president, Oleksandr Turchynov, signaled on Monday morning that he would not be opposed to a referendum on granting regions greater autonomy. Will this concession quell protests?

Pifer: There's a separate case to be made about local autonomy. For the last twenty years, too much authority has been centralized in Kiev. Some spreading of authority to the provinces and to local governments would make for more effective, efficient, and accountable governance.

But the Russians are talking about federalization, and the demonstrators in the buildings are talking about a lot more than local power. The polls in eastern Ukraine suggest that the majority of the population is quite content with the current system; they're not pushing for some radical federalization.

CFR: There's a major meeting in Geneva scheduled for this week. Who's going to be there? And is there any hope that some deal could be struck?

Pifer: It's a conversation that's going to take place or is planned to take place among the U.S., Russian, and Ukrainian foreign ministers and the EU's Catherine Ashton. U.S. secretary of state John Kerry and Russian foreign minister Sergei Lavrov have met several times and talked about Ukraine a great deal, but this is the first time that the Ukrainians will take part.

The big question here is: Does Vladimir Putin want a deal? In recent weeks, the Obama administration has stressed the importance of leaving a diplomatic off-ramp for Putin to get out of the crisis. But it seems that every time that off-ramp is [presented], Putin just hits the accelerator and keeps on going. Right now, the Russians are not only raising the price of gas, they've also blocked some Ukrainian exports to Russia. The photographic evidence that we've seen of Russian forces on the eastern Ukrainian border indicate they're trying to keep Ukrainians on edge.

The weekend's actions do not augur well for the Thursday meeting. For the meeting to progress toward a resolution of the crisis, Foreign Minister Lavrov needs to come to Geneva with some ideas for deescalating the crisis. But that does not appear to be the Russian objective now.

CFR: How powerful is Russia's energy leverage over Ukraine?

Pifer: Ukraine depends on Russia for about 55 percent of its natural gas, and it is currently in arrears in its payment for that gas. Moscow has threatened to cut off supplies if Ukraine can't pay what it owes. However, there are a couple of things that work in Ukraine's favor. One is, by most accounts, they've stockpiled three, maybe four months of gas. Second, it's springtime, so they need less gas for heating purposes. Finally, Russia still moves 60 percent of the gas it sells to Europe through pipelines that transit Ukraine.

What Russia found in 2006 and 2009 was that it could not turn off the gas to Ukraine without also turning off the gas to Europe. Gazprom, the main gas exporting entity in Russia, does not like that because if they turn off gas to Europe, they lose revenue and can be subject to contract penalties for not providing gas. It also diminishes their reputation as a reliable supplier of gas and fuels thinking in Europe [about energy alternatives]. So the Ukrainians are in a difficult position, but by virtue of the fact the Russia still needs to transit gas through Ukraine to places like Germany, Italy, and Austria, they have some leverage.

CFR: Apart from their dependence on Russian gas, what are some of the other economic challenges facing Kiev?

Pifer: It's calculated that they need to get through this year without defaulting on external debt estimated to be somewhere between $15 billion to $20 billion. That money is potentially there: they have a preliminary agreement with the IMF for a $14 billion to18 billion bailout. There could be additional funds made available from the World Bank and the European Bank for Reconstruction and Development; the EU has also offered quite a bit of money. But the IMF program always comes with reform conditionalities. The idea is basically to use this two-year period when they're getting IMF financing to put their economic accounts in order so that by 2016 they don't need to borrow large amounts of money.

These economic reforms are going to cause some economic dislocation and pain. For example, the price of heating will go up as of May 1. [The IMF is] going to require that the Ukrainian currency be allowed to float, which will mean that currency is going to devalue. And they'll have to end subsidies to some older industries. So, there's going to be a lot of political pain, and the real challenge is finding a way to persuade the population to bite the bullet and accept the fact that there's going to be this difficult economic time for the next year or two, with the idea being that once they get through it, they can enjoy a more normal growing economy.

CFR: Are they still hoping to hold presidential elections on May 25?

Pifer: By all indications the government wants to stick to that plan, which is important. The acting government took some shortcuts constitutionally. I think having an elected president gives the person much more legitimacy and will only strengthen the government in Kiev.

CFR: Is it likely that tensions in the region will continue to rise?

Pifer: The focus has been on Crimea for the last six weeks, but I don't think the endgame was about Crimea. The fact that Putin has Crimea now doesn't mean that his larger goal, which is to prevent Ukrainians from getting too close to the EU, isn't still very much in play. The sorts of pressure that we're seeing, including this buildup in military forces on the Ukrainian border, are designed to destabilize the government in hopes of thwarting that.

Now, I don't believe the Russian military will enter eastern Ukraine. I don't exclude it, but I think it's unlikely. Part of the reason is that I believe the Russians understand that were there to be a broader military intervention in eastern Ukraine, the Ukrainian military would fight. It may be out-gunned, out-manned, and underfunded, but it would fight. And I think the Russians would also have to worry not just about a force-on-force fight, but also partisan warfare once they begin to take territory.

Authors

Editor's Note: In an interview with the Council on Foreign Relations, Steven Pifer discusses the challenges that face the interim Ukrainian government and the threat that Russia poses to Ukraine's stability and unity.

Steven Pifer, a former U.S. ambassador to Ukraine, says "this weekend's actions do not augur well" for scheduled talks in Geneva this Thursday, where diplomats from the United States, EU, Russia, and Ukraine will attempt to negotiate an end to the Ukraine crisis. While Pifer believes that granting more local autonomy to the eastern regions would make for more "effective, efficient, and accountable governance," he stresses that pro-Russian separatists are "talking about a lot more than local power." As for Russia's designs on Ukraine, Pifer says that they encompass more than Crimea. "The fact that Putin has Crimea now doesn't mean that his larger goal, which is to prevent Ukrainians from getting too close to the EU, isn't still very much in play," he says.

Council on Foreign Relations: Pro-Russian forces continued to seize buildings and police headquarters in eastern Ukraine over the weekend. What is the impact of these events on the morale of the pro-Ukrainian supporters?

Steven Pifer: There is little doubt that the recent armed seizures of buildings in eastern Ukraine were instigated by Moscow. I see this as part of Russia's effort to destabilize Ukraine. Those actions put the acting Ukrainian government in an increasingly sharp dilemma: Does Kiev take back the buildings, which would run a risk of bloodshed and might provide a pretext for Russian military action? Or does Kiev sit back as the number of seizures increases? The acting government may conclude that it has to do something.

CFR: Ukraine's interim president, Oleksandr Turchynov, signaled on Monday morning that he would not be opposed to a referendum on granting regions greater autonomy. Will this concession quell protests?

Pifer: There's a separate case to be made about local autonomy. For the last twenty years, too much authority has been centralized in Kiev. Some spreading of authority to the provinces and to local governments would make for more effective, efficient, and accountable governance.

But the Russians are talking about federalization, and the demonstrators in the buildings are talking about a lot more than local power. The polls in eastern Ukraine suggest that the majority of the population is quite content with the current system; they're not pushing for some radical federalization.

CFR: There's a major meeting in Geneva scheduled for this week. Who's going to be there? And is there any hope that some deal could be struck?

Pifer: It's a conversation that's going to take place or is planned to take place among the U.S., Russian, and Ukrainian foreign ministers and the EU's Catherine Ashton. U.S. secretary of state John Kerry and Russian foreign minister Sergei Lavrov have met several times and talked about Ukraine a great deal, but this is the first time that the Ukrainians will take part.

The big question here is: Does Vladimir Putin want a deal? In recent weeks, the Obama administration has stressed the importance of leaving a diplomatic off-ramp for Putin to get out of the crisis. But it seems that every time that off-ramp is [presented], Putin just hits the accelerator and keeps on going. Right now, the Russians are not only raising the price of gas, they've also blocked some Ukrainian exports to Russia. The photographic evidence that we've seen of Russian forces on the eastern Ukrainian border indicate they're trying to keep Ukrainians on edge.

The weekend's actions do not augur well for the Thursday meeting. For the meeting to progress toward a resolution of the crisis, Foreign Minister Lavrov needs to come to Geneva with some ideas for deescalating the crisis. But that does not appear to be the Russian objective now.

CFR: How powerful is Russia's energy leverage over Ukraine?

Pifer: Ukraine depends on Russia for about 55 percent of its natural gas, and it is currently in arrears in its payment for that gas. Moscow has threatened to cut off supplies if Ukraine can't pay what it owes. However, there are a couple of things that work in Ukraine's favor. One is, by most accounts, they've stockpiled three, maybe four months of gas. Second, it's springtime, so they need less gas for heating purposes. Finally, Russia still moves 60 percent of the gas it sells to Europe through pipelines that transit Ukraine.

What Russia found in 2006 and 2009 was that it could not turn off the gas to Ukraine without also turning off the gas to Europe. Gazprom, the main gas exporting entity in Russia, does not like that because if they turn off gas to Europe, they lose revenue and can be subject to contract penalties for not providing gas. It also diminishes their reputation as a reliable supplier of gas and fuels thinking in Europe [about energy alternatives]. So the Ukrainians are in a difficult position, but by virtue of the fact the Russia still needs to transit gas through Ukraine to places like Germany, Italy, and Austria, they have some leverage.

CFR: Apart from their dependence on Russian gas, what are some of the other economic challenges facing Kiev?

Pifer: It's calculated that they need to get through this year without defaulting on external debt estimated to be somewhere between $15 billion to $20 billion. That money is potentially there: they have a preliminary agreement with the IMF for a $14 billion to18 billion bailout. There could be additional funds made available from the World Bank and the European Bank for Reconstruction and Development; the EU has also offered quite a bit of money. But the IMF program always comes with reform conditionalities. The idea is basically to use this two-year period when they're getting IMF financing to put their economic accounts in order so that by 2016 they don't need to borrow large amounts of money.

These economic reforms are going to cause some economic dislocation and pain. For example, the price of heating will go up as of May 1. [The IMF is] going to require that the Ukrainian currency be allowed to float, which will mean that currency is going to devalue. And they'll have to end subsidies to some older industries. So, there's going to be a lot of political pain, and the real challenge is finding a way to persuade the population to bite the bullet and accept the fact that there's going to be this difficult economic time for the next year or two, with the idea being that once they get through it, they can enjoy a more normal growing economy.

CFR: Are they still hoping to hold presidential elections on May 25?

Pifer: By all indications the government wants to stick to that plan, which is important. The acting government took some shortcuts constitutionally. I think having an elected president gives the person much more legitimacy and will only strengthen the government in Kiev.

CFR: Is it likely that tensions in the region will continue to rise?

Pifer: The focus has been on Crimea for the last six weeks, but I don't think the endgame was about Crimea. The fact that Putin has Crimea now doesn't mean that his larger goal, which is to prevent Ukrainians from getting too close to the EU, isn't still very much in play. The sorts of pressure that we're seeing, including this buildup in military forces on the Ukrainian border, are designed to destabilize the government in hopes of thwarting that.

Now, I don't believe the Russian military will enter eastern Ukraine. I don't exclude it, but I think it's unlikely. Part of the reason is that I believe the Russians understand that were there to be a broader military intervention in eastern Ukraine, the Ukrainian military would fight. It may be out-gunned, out-manned, and underfunded, but it would fight. And I think the Russians would also have to worry not just about a force-on-force fight, but also partisan warfare once they begin to take territory.

Authors

]]>
http://www.brookings.edu/blogs/africa-in-focus/posts/2014/04/09-world-bank-international-monetary-fund-africa-sy?rssid=world+bank{DA878495-702F-4A39-BC40-2D24F7AB2300}http://webfeeds.brookings.edu/~/66357470/0/brookingsrss/topics/worldbank~Top-Three-African-Topics-for-the-World-BankIMF-Spring-MeetingsTop Three African Topics for the World Bank-IMF Spring Meetings

Early spring in Washington D.C. is cherry blossom season with its contingent of tourists streaming towards the National Mall. But early spring also brings to the nation’s capital another species: Delegations from ministries of finance and central banks from around the globe coming to the World Bank-International Monetary Fund Spring Meetings. You can recognize them as the men and women in black outfits walking briskly on 19th Street or Pennsylvania Avenue to their way to meetings. Some of them will be from Africa, and I am betting that they will be discussing the following three issues.

The Impact of Fed Tapering

The IMF has warned that although the global economy has broadly stabilized, new obstacles have emerged. One of the major roadblocks the IMF has recently mentioned—the risk of heightened market volatility associated with the tapering of quantitative easing—has already had an impact on some African countries. In a recent blog, I discuss how Ghana, Nigeria and South Africa are the African countries most at risk from the February market turmoil. These economies are experiencing capital flow reversal and weakening currencies in addition to domestic challenges, such as higher-than-targeted fiscal deficits, an electoral cycle or structural deficiencies. I would now add Zambia to this list, as the country is being hit by portfolio reversal and lower copper prices.

For these countries, discussions with IMF experts about which instruments for managing the effects of capital flows reversal will take center stage. Such discussions will also include macroeconomic and structural policies to address existing longer-term challenges. Now, how about on the other side of 19th Street?

A Bigger World Bank

World Bank President Jim Yong Kim recently announced a $100 billion increase in the lending capacity of the Bank’s lending arm for middle-income countries (MICs) over the next 10 years. This move follows a record $52 billion replenishment of the International Development Association (IDA), the Bank’s fund for the poorest countries, following the IMF-World Bank Annual Meetings last year.

Unbeknownst to many, 22 sub-Saharan African countries are classified as MICs by the World Bank. These countries have all a per capita income exceeding $1,036 and below $12,615 and are themselves divided into lower-MICs (with a per capita income lower than $4,085) and upper-MICs (with a per capita income higher than $4,085). Furthermore, a number of African lower-income countries (LICs, with $1,035 per capita income or less) such as Kenya, Uganda, Rwanda and Tanzania may “graduate” to become MICs by 2025.

These African MICs and soon-to-become MICs may become eligible to new loans, but should recognize that the larger lending capacity of the Bank will come at a higher cost. For instance, the Bank is restoring its 25 basis point commitment fee that it used to charge on undisbursed balances. This means that a country borrowing $100 million and not using the money will have to pay a fee of $250,000.

Given Africa’s large infrastructure funding gap, a bigger World Bank may be good news, as it will bring in not only more financial resources but also more technical assistance. But the World Bank is not the only one with an increased interest in Africa. These days, everybody from Beijing and Tokyo to Washington D.C. to Brasilia via Brussels is interested in Africa. The real issue is, therefore, whether African policymakers will make the best out of this growing interest.

I would suggest that, in parallel to the spring meetings, top African policymakers (not the governors and ministers but technocrats such as chief economists and reform team leaders) meet to compare notes and discuss the best way to refine current strategies to transform the continent’s economies. At least, meetings along the lines of existing regional economic communities would be useful. My colleague, Ernesto Talvi, tells me that this has been going on for a while now for Latin American chief economists. (For his thoughts on the Spring Meetings, see here).

Conflicts

Finally, I suspect that delegations will discuss the dire situation in the Central African Republic (CAR) and South Sudan. It is not at all premature to start preparing now for the economic engagement of the Bretton Woods Institutions once peace resumes. These will require a long-term re-engagement of the international community with not only well-targeted technical assistance but also sufficient funding to kick-start the economy and rebuild institutions. The work should not wait for the arrest of hostilities.

There is a consensus on both sides of 19th Street that growth in sub-Saharan Africa will continue at a strong pace in the short term. African governors may therefore be tempted to start the spring meetings with a sense of accomplishment. That would be the wrong attitude. Africa’s growth is still jobless and its youth bulge shows no clear sign of becoming a youth dividend. The current positive growth prospects should be seen as windows of opportunity to lay the basis for a higher, sustainable, and more inclusive growth. The policies to achieve this goal should be homegrown and the Spring Meetings provide a good opportunity to test them.

Authors

Early spring in Washington D.C. is cherry blossom season with its contingent of tourists streaming towards the National Mall. But early spring also brings to the nation’s capital another species: Delegations from ministries of finance and central banks from around the globe coming to the World Bank-International Monetary Fund Spring Meetings. You can recognize them as the men and women in black outfits walking briskly on 19th Street or Pennsylvania Avenue to their way to meetings. Some of them will be from Africa, and I am betting that they will be discussing the following three issues.

The Impact of Fed Tapering

The IMF has warned that although the global economy has broadly stabilized, new obstacles have emerged. One of the major roadblocks the IMF has recently mentioned—the risk of heightened market volatility associated with the tapering of quantitative easing—has already had an impact on some African countries. In a recent blog, I discuss how Ghana, Nigeria and South Africa are the African countries most at risk from the February market turmoil. These economies are experiencing capital flow reversal and weakening currencies in addition to domestic challenges, such as higher-than-targeted fiscal deficits, an electoral cycle or structural deficiencies. I would now add Zambia to this list, as the country is being hit by portfolio reversal and lower copper prices.

For these countries, discussions with IMF experts about which instruments for managing the effects of capital flows reversal will take center stage. Such discussions will also include macroeconomic and structural policies to address existing longer-term challenges. Now, how about on the other side of 19th Street?

A Bigger World Bank

World Bank President Jim Yong Kim recently announced a $100 billion increase in the lending capacity of the Bank’s lending arm for middle-income countries (MICs) over the next 10 years. This move follows a record $52 billion replenishment of the International Development Association (IDA), the Bank’s fund for the poorest countries, following the IMF-World Bank Annual Meetings last year.

Unbeknownst to many, 22 sub-Saharan African countries are classified as MICs by the World Bank. These countries have all a per capita income exceeding $1,036 and below $12,615 and are themselves divided into lower-MICs (with a per capita income lower than $4,085) and upper-MICs (with a per capita income higher than $4,085). Furthermore, a number of African lower-income countries (LICs, with $1,035 per capita income or less) such as Kenya, Uganda, Rwanda and Tanzania may “graduate” to become MICs by 2025.

These African MICs and soon-to-become MICs may become eligible to new loans, but should recognize that the larger lending capacity of the Bank will come at a higher cost. For instance, the Bank is restoring its 25 basis point commitment fee that it used to charge on undisbursed balances. This means that a country borrowing $100 million and not using the money will have to pay a fee of $250,000.

Given Africa’s large infrastructure funding gap, a bigger World Bank may be good news, as it will bring in not only more financial resources but also more technical assistance. But the World Bank is not the only one with an increased interest in Africa. These days, everybody from Beijing and Tokyo to Washington D.C. to Brasilia via Brussels is interested in Africa. The real issue is, therefore, whether African policymakers will make the best out of this growing interest.

I would suggest that, in parallel to the spring meetings, top African policymakers (not the governors and ministers but technocrats such as chief economists and reform team leaders) meet to compare notes and discuss the best way to refine current strategies to transform the continent’s economies. At least, meetings along the lines of existing regional economic communities would be useful. My colleague, Ernesto Talvi, tells me that this has been going on for a while now for Latin American chief economists. (For his thoughts on the Spring Meetings, see here).

Conflicts

Finally, I suspect that delegations will discuss the dire situation in the Central African Republic (CAR) and South Sudan. It is not at all premature to start preparing now for the economic engagement of the Bretton Woods Institutions once peace resumes. These will require a long-term re-engagement of the international community with not only well-targeted technical assistance but also sufficient funding to kick-start the economy and rebuild institutions. The work should not wait for the arrest of hostilities.

There is a consensus on both sides of 19th Street that growth in sub-Saharan Africa will continue at a strong pace in the short term. African governors may therefore be tempted to start the spring meetings with a sense of accomplishment. That would be the wrong attitude. Africa’s growth is still jobless and its youth bulge shows no clear sign of becoming a youth dividend. The current positive growth prospects should be seen as windows of opportunity to lay the basis for a higher, sustainable, and more inclusive growth. The policies to achieve this goal should be homegrown and the Spring Meetings provide a good opportunity to test them.

Authors

]]>
http://www.brookings.edu/blogs/education-plus-development/posts/2014/04/09-world-bank-international-monetary-fund-edcuation-steer?rssid=world+bank{AE2ED231-C544-4660-9A3E-20199719A7B5}http://webfeeds.brookings.edu/~/66357471/0/brookingsrss/topics/worldbank~Welcome-Ministers-Can-We-Convince-You-to-Invest-More-in-EducationWelcome Ministers! Can We Convince You to Invest More in Education?

This week, hundreds of government leaders, donors and a plethora of development activists and thinkers will descend on Washington, DC for the World Bank-IMF Spring meetings. On the agenda are critical development issues as well efforts to build international support for improving the lives of the world’s poor. Education is central to these efforts.

The clock is ticking. There are only just over 500 days left before the Millennium Development Goals end. Fifty-seven million children remain out of school and a quarter of a billion are not learning, even after having spent time in primary school. On Wednesday, the UN Special Envoy for Global Education and A World at School is organizing the 2015 Countdown Summit to draw attention to the plight of the children that are left behind without a quality education and with little chance of escaping their often desperate circumstances. The summit will coincide with the Learning for All Symposium, which will discuss the global learning crisis that is affecting a total of 250 million primary aged children. This symposium is the third in a series, with the first meeting held in conjunction with last year’s World Bank-IMF Spring meetings.

Bringing quality education to all children around the world is a tough but not insurmountable challenge. The number of primary aged children out of school has been nearly halved over the past decade, and much work has gone into identifying the barriers that keep children from getting into school and learning. These are laid out in a number of country reports that were prepared for last year’s meetings and will be summarized in a forthcoming report on the fourteen Learning for All countries. They include economic and socio-cultural barriers such as child marriage. Other major concerns are infrastructure and teacher quality, as well as weak monitoring and accountability. Solutions to removing these barriers already exist and have been studied using rigorous methods of evaluation. These solutions now need to be scaled.

Central to this will be adequate finance—which in turn will be decided by the finance ministers and donors gathering this week. The arguments for investing in education seem overwhelmingly clear, but spending has fallen far short of what is needed and is even declining in the case of foreign aid. While overall aid has grown by 6 percent between 2009 and 2012, aid to basic education fell by 16 percent globally and by 25 percent in sub-Saharan Africa! Public spending on education has increased significantly in most countries, but in 75 percent of countries it is still below the recommended 6 percent of GDP. The replenishment of the Global Partnership for Education, the sector’s only dedicated global fund, will also be discussed this week.

Education is competing with other sectors for scarce resources. In most countries, an increase in education spending in the short term will require spending less on something else. The recommendation to spend 20 percent of total public spending on education is strongly advocated, but it is much less clear what countries who are not currently meeting this goal should spend less on. Is it infrastructure, health, defense? What are the opportunity costs? The development community, and the education community, in particular, is failing to grapple with these larger questions of trade off.

Politicians and other decision makers will invest in education only if a clear impact of dollars invested can be demonstrated (preferably in the short term and compared to other investments). Fortunately, in the past few years a large number of rigorous evaluations have demonstrated the impact of specific interventions. These data will be on display for ministers this week. Truthfully, it has been harder to demonstrate that rapid scaling up of such successful pilots is equally successful at a nationwide level. For example, a hugely successful contract teacher program in Kenya, implemented by NGOs, became much less effective once the government decided to scale it up through public institutions. Another problem has been that data on education outcomes and spending has been hard to come by, making monitoring and evaluation tricky.

We are now in a situation to be able to say with much greater confidence what works in what context. High quality data on finance and impact are improving as more countries conduct learning assessments and expenditure tracking surveys. And lessons of successful scale-up are being learned. Thus, for example, learning-by-doing, community-based action guided by data and honest evaluations of impact can have highly positive effects on learning outcomes. Recent discussions reflecting on lessons learned since the 2004 World Development Report, Making Services Work for Poor People, have highlighted similar lessons.

The case for adequate financing for education is now convincing. Let’s hope among all the commotion of this week’s meetings, policymakers can hear the clock ticking—and act boldly.

Authors

This week, hundreds of government leaders, donors and a plethora of development activists and thinkers will descend on Washington, DC for the World Bank-IMF Spring meetings. On the agenda are critical development issues as well efforts to build international support for improving the lives of the world’s poor. Education is central to these efforts.

The clock is ticking. There are only just over 500 days left before the Millennium Development Goals end. Fifty-seven million children remain out of school and a quarter of a billion are not learning, even after having spent time in primary school. On Wednesday, the UN Special Envoy for Global Education and A World at School is organizing the 2015 Countdown Summit to draw attention to the plight of the children that are left behind without a quality education and with little chance of escaping their often desperate circumstances. The summit will coincide with the Learning for All Symposium, which will discuss the global learning crisis that is affecting a total of 250 million primary aged children. This symposium is the third in a series, with the first meeting held in conjunction with last year’s World Bank-IMF Spring meetings.

Bringing quality education to all children around the world is a tough but not insurmountable challenge. The number of primary aged children out of school has been nearly halved over the past decade, and much work has gone into identifying the barriers that keep children from getting into school and learning. These are laid out in a number of country reports that were prepared for last year’s meetings and will be summarized in a forthcoming report on the fourteen Learning for All countries. They include economic and socio-cultural barriers such as child marriage. Other major concerns are infrastructure and teacher quality, as well as weak monitoring and accountability. Solutions to removing these barriers already exist and have been studied using rigorous methods of evaluation. These solutions now need to be scaled.

Central to this will be adequate finance—which in turn will be decided by the finance ministers and donors gathering this week. The arguments for investing in education seem overwhelmingly clear, but spending has fallen far short of what is needed and is even declining in the case of foreign aid. While overall aid has grown by 6 percent between 2009 and 2012, aid to basic education fell by 16 percent globally and by 25 percent in sub-Saharan Africa! Public spending on education has increased significantly in most countries, but in 75 percent of countries it is still below the recommended 6 percent of GDP. The replenishment of the Global Partnership for Education, the sector’s only dedicated global fund, will also be discussed this week.

Education is competing with other sectors for scarce resources. In most countries, an increase in education spending in the short term will require spending less on something else. The recommendation to spend 20 percent of total public spending on education is strongly advocated, but it is much less clear what countries who are not currently meeting this goal should spend less on. Is it infrastructure, health, defense? What are the opportunity costs? The development community, and the education community, in particular, is failing to grapple with these larger questions of trade off.

Politicians and other decision makers will invest in education only if a clear impact of dollars invested can be demonstrated (preferably in the short term and compared to other investments). Fortunately, in the past few years a large number of rigorous evaluations have demonstrated the impact of specific interventions. These data will be on display for ministers this week. Truthfully, it has been harder to demonstrate that rapid scaling up of such successful pilots is equally successful at a nationwide level. For example, a hugely successful contract teacher program in Kenya, implemented by NGOs, became much less effective once the government decided to scale it up through public institutions. Another problem has been that data on education outcomes and spending has been hard to come by, making monitoring and evaluation tricky.

We are now in a situation to be able to say with much greater confidence what works in what context. High quality data on finance and impact are improving as more countries conduct learning assessments and expenditure tracking surveys. And lessons of successful scale-up are being learned. Thus, for example, learning-by-doing, community-based action guided by data and honest evaluations of impact can have highly positive effects on learning outcomes. Recent discussions reflecting on lessons learned since the 2004 World Development Report, Making Services Work for Poor People, have highlighted similar lessons.

The case for adequate financing for education is now convincing. Let’s hope among all the commotion of this week’s meetings, policymakers can hear the clock ticking—and act boldly.

This week, Latin American policymakers are descending on Washington, D.C. for the World Bank and IMF Spring Meetings. As they gather together with their counterparts to discuss the global economy, it would be fair to say that emerging economies are breathing a sigh of relief. The odds of tail-risk scenarios—such as the breakup of the eurozone or the Fed removing monetary stimulus and raising interest rates too soon and too fast—appear to have been greatly reduced. Such scenarios, which the markets now estimate as unlikely to materialize, would have resulted in a highly disruptive interruption in capital inflows, sharp declines in commodity prices and severe macroeconomic adjustment.

Suffice it to say that the mere announcement of the Fed tapering in May 2013 led to a full 1 percentage point increase in U.S. Treasury bond yields, a rise in EMBI yields in excess of 2 percentage points, and severe declines in asset prices and currencies. Moreover, countries that were the main beneficiaries of nearly a decade of very large capital inflows—leading to above average historical growth, a steep rise in asset prices, large currency appreciation and current account deficits—were hit the hardest.

The reduced probability of extreme events that could traumatize international financial markets comes at a time when markets expect the recovery of advanced economies to gain momentum in 2014.

Moreover, most countries in the region are in a stronger financial position to withstand financial turbulence due to higher levels of international liquidity relative to short-term liabilities and lower balance sheet vulnerability to currency depreciation than in the late 1990s. The combination of an improved financial position and a relatively benign external environment has shifted the market’s sight from financial risks to productivity issues. With Latin America´s expected growth of a lackluster 3 percent in 2014, productivity-enhancing reforms become a priority. In fact, low growth rates are the main reason behind the more negative perception that rating agencies have taken towards most of the region.

This shift in focus towards pro-growth reforms is welcome after a decade of complacency in which many countries in the region displayed above average performance riding on favorable —and now waning— external tailwinds. However, the shift in focus away from macro-risks is premature to say the least.

Back to Fundamentals?

With financial risks apparently in retreat, policymakers need to turn their sights to a different kind of macro-risk: gradually deteriorating fundamentals.

Even if expected —and even worse if unexpected— a relatively small rise in long-term U.S. interest rates can have a disproportionately large macroeconomic impact,resulting in a potentially significant slowdown in investment and durable consumption.

First, it is precisely the expectation of future increases in interest rates that keeps the demand for investment and consumption of durable goods high, as consumers and firms bring forward spending in these items to lock-in low rates. As rates increase and domestic demand contracts, slower growth, currency depreciation, declining revenues (which in Latin America are very sensitive to domestic spending), and higher fiscal deficits are the inevitable outcomes.

This is especially true for those economies where domestic demand growth fueled by large capital inflows has so far remained strong in spite of growth deceleration since mid-2011. These are precisely the economies that display current account deficits and where the dollar value of assets and unit labor costs is still very high. In fact, it is these economies that were hit the hardest in the aftermath of last year’s surprise Fed tapering announcement.

Second, the levels of total indebtedness in the region (public and private, external and domestic) are currently as high as they were in the late 1990s (close to 100 percent of GDP) as a result of very high domestic financial institutions’ credit growth and abundant foreign financing. As U.S. interest rates rise, financial deleveraging will be an extra drag on the economy, depressing further consumption and investment, growth and fiscal revenues.

Higher borrowing costs, lower growth and weaker revenues in light of relatively inflexible expenditures (a recent Inter-American Development Bank report documents that, on average, more than two-thirds of the increase in spending since the Great Recession stems from items that could be labeled inflexible), will lead to higher fiscal deficits and potentially unsustainable public debt dynamics.

After close to a decade of high growth, booming revenues and public spending, and high expectations about the active role of the state, a dissatisfied electorate will be putting pressure on governments to avoid necessary adjustments in public spending, making governments prone to accommodate popular demands at the expense of sound and sustainable policies.

First, in order to avoid cuts in politically sensitive programs, governments may choose to adjust public finances by introducing distortionary taxation and/or sub-optimally reducing investment, thus hampering future growth. Alternatively, countries with access to credit markets may allow public debt to rise, delaying politically costly reductions in public spending.

In countries such as Argentina with no access to international capital markets, these tensions are already obvious. The deterioration in its fiscal position since 2011, financed by money creation and thus higher inflation and the loss of international reserves, has raised the specter of a currency crisis.

Conclusion

While remaining vigilant about apparently fading financial risks, policymakers should turn their attention not only to productivity-enhancing pro-growth reforms but also to another kind of macro-risk: gradually deteriorating fundamentals. In contrast to financial risks that disrupt access to international liquidity, deteriorating fundamentals are a more subtle, less dramatic and more elusive strain of macro-risk, since they do not usually require immediate attention if access to credit is available.

Ironically, after experiencing a succession of 21st century liquidity crises in the region since the tequila crisis in 1994 and having made substantial progress in reducing financial vulnerabilities, there is a chance that some of the long-forgotten fundamental problems that haunted the region just a few decades ago might gradually come to the forefront. For most countries in the region, this is not a clear and present danger, but policymakers should take due notice.

Authors

This week, Latin American policymakers are descending on Washington, D.C. for the World Bank and IMF Spring Meetings. As they gather together with their counterparts to discuss the global economy, it would be fair to say that emerging economies are breathing a sigh of relief. The odds of tail-risk scenarios—such as the breakup of the eurozone or the Fed removing monetary stimulus and raising interest rates too soon and too fast—appear to have been greatly reduced. Such scenarios, which the markets now estimate as unlikely to materialize, would have resulted in a highly disruptive interruption in capital inflows, sharp declines in commodity prices and severe macroeconomic adjustment.

Suffice it to say that the mere announcement of the Fed tapering in May 2013 led to a full 1 percentage point increase in U.S. Treasury bond yields, a rise in EMBI yields in excess of 2 percentage points, and severe declines in asset prices and currencies. Moreover, countries that were the main beneficiaries of nearly a decade of very large capital inflows—leading to above average historical growth, a steep rise in asset prices, large currency appreciation and current account deficits—were hit the hardest.

The reduced probability of extreme events that could traumatize international financial markets comes at a time when markets expect the recovery of advanced economies to gain momentum in 2014.

Moreover, most countries in the region are in a stronger financial position to withstand financial turbulence due to higher levels of international liquidity relative to short-term liabilities and lower balance sheet vulnerability to currency depreciation than in the late 1990s. The combination of an improved financial position and a relatively benign external environment has shifted the market’s sight from financial risks to productivity issues. With Latin America´s expected growth of a lackluster 3 percent in 2014, productivity-enhancing reforms become a priority. In fact, low growth rates are the main reason behind the more negative perception that rating agencies have taken towards most of the region.

This shift in focus towards pro-growth reforms is welcome after a decade of complacency in which many countries in the region displayed above average performance riding on favorable —and now waning— external tailwinds. However, the shift in focus away from macro-risks is premature to say the least.

Back to Fundamentals?

With financial risks apparently in retreat, policymakers need to turn their sights to a different kind of macro-risk: gradually deteriorating fundamentals.

Even if expected —and even worse if unexpected— a relatively small rise in long-term U.S. interest rates can have a disproportionately large macroeconomic impact,resulting in a potentially significant slowdown in investment and durable consumption.

First, it is precisely the expectation of future increases in interest rates that keeps the demand for investment and consumption of durable goods high, as consumers and firms bring forward spending in these items to lock-in low rates. As rates increase and domestic demand contracts, slower growth, currency depreciation, declining revenues (which in Latin America are very sensitive to domestic spending), and higher fiscal deficits are the inevitable outcomes.

This is especially true for those economies where domestic demand growth fueled by large capital inflows has so far remained strong in spite of growth deceleration since mid-2011. These are precisely the economies that display current account deficits and where the dollar value of assets and unit labor costs is still very high. In fact, it is these economies that were hit the hardest in the aftermath of last year’s surprise Fed tapering announcement.

Second, the levels of total indebtedness in the region (public and private, external and domestic) are currently as high as they were in the late 1990s (close to 100 percent of GDP) as a result of very high domestic financial institutions’ credit growth and abundant foreign financing. As U.S. interest rates rise, financial deleveraging will be an extra drag on the economy, depressing further consumption and investment, growth and fiscal revenues.

Higher borrowing costs, lower growth and weaker revenues in light of relatively inflexible expenditures (a recent Inter-American Development Bank report documents that, on average, more than two-thirds of the increase in spending since the Great Recession stems from items that could be labeled inflexible), will lead to higher fiscal deficits and potentially unsustainable public debt dynamics.

After close to a decade of high growth, booming revenues and public spending, and high expectations about the active role of the state, a dissatisfied electorate will be putting pressure on governments to avoid necessary adjustments in public spending, making governments prone to accommodate popular demands at the expense of sound and sustainable policies.

First, in order to avoid cuts in politically sensitive programs, governments may choose to adjust public finances by introducing distortionary taxation and/or sub-optimally reducing investment, thus hampering future growth. Alternatively, countries with access to credit markets may allow public debt to rise, delaying politically costly reductions in public spending.

In countries such as Argentina with no access to international capital markets, these tensions are already obvious. The deterioration in its fiscal position since 2011, financed by money creation and thus higher inflation and the loss of international reserves, has raised the specter of a currency crisis.

Conclusion

While remaining vigilant about apparently fading financial risks, policymakers should turn their attention not only to productivity-enhancing pro-growth reforms but also to another kind of macro-risk: gradually deteriorating fundamentals. In contrast to financial risks that disrupt access to international liquidity, deteriorating fundamentals are a more subtle, less dramatic and more elusive strain of macro-risk, since they do not usually require immediate attention if access to credit is available.

Ironically, after experiencing a succession of 21st century liquidity crises in the region since the tequila crisis in 1994 and having made substantial progress in reducing financial vulnerabilities, there is a chance that some of the long-forgotten fundamental problems that haunted the region just a few decades ago might gradually come to the forefront. For most countries in the region, this is not a clear and present danger, but policymakers should take due notice.

The World Bank and International Monetary Fund hold their annual meetings this weekend in Washington, D.C. According to the IMF's World Economic Outlook, "Global growth is now projected to be slightly higher in 2014" yet "downward revisions to growth forecasts in some economies highlight continued fragilities, and downside risks remain." Here is some of what Brookings experts are saying about the agenda:

Liesbet Steer says policymakers should focus on adequate financing for quality education. "The arguments for investing in education seem overwhelmingly clear," she writes, "but spending has fallen far short of what is needed and is even declining in the case of foreign aid."

Authors

The World Bank and International Monetary Fund hold their annual meetings this weekend in Washington, D.C. According to the IMF's World Economic Outlook, "Global growth is now projected to be slightly higher in 2014" yet "downward revisions to growth forecasts in some economies highlight continued fragilities, and downside risks remain." Here is some of what Brookings experts are saying about the agenda:

Liesbet Steer says policymakers should focus on adequate financing for quality education. "The arguments for investing in education seem overwhelmingly clear," she writes, "but spending has fallen far short of what is needed and is even declining in the case of foreign aid."

On Tuesday, March 18, President Hery Rajaonarimampianina, the newly elected leader of Madagascar, will be in Washington, D.C. to meet with senior officials from the Obama administration as well as the heads of the International Monetary Fund and the World Bank. The president’s visit should be the prelude to the end of a four-year period of economic sanctions during which the donor community froze all but emergency assistance to the aid-dependent Malagasy economy. From a diplomatic standpoint, the mere fact that these meetings are taking place is a significant achievement for the new authorities. However, it is safe to assume that the president’s plan to launch the Malagasy economy onto a sustainable growth trajectory and the role of the international community in helping achieve this objective will certainly be high on the agenda.

President Rajaonarimampianina is facing daunting challenges in his new role, starting with a very toxic political environment. A lot of resentment remains from the successive political crises, and progress towards a national reconciliation is uneven. The Malagasy political system has been described as dysfunctional and the current status quo is a very unstable equilibrium that could unravel at any time. While playing a balancing act, the new president will need to both challenge and resist the temptation of the “winner-takes-all-and-keeps-all” political mentality that is prevalent in Madagascar. In this type of environment, support from the international community will be crucial for the president to govern and formulate a plan for economic recovery.

Assuming that the president manages to put the political house in order (which we hope he will), Madagascar seems poised to stage a strong recovery. The country has already demonstrated the potential to attain a high growth path many times before (at least in the short term). The main challenge for Malagasy policymakers and their development partners is to ensure that the economy not only reaches a cruising altitude but remains on that high growth path for a sustained period of time. There may be many recipes for this goal but the key ingredient remains the same: jobs. A jobless recovery will not yield a prosperity that is widely shared among Malagasy citizens. People need (well-paid and secure) jobs as their ladder to climb out of poverty. And as long as growth is not inclusive, the chances of a repeat of the “Madagascar cycle” of political and economic booms and busts remain high.

Removing economic sanctions would go a long way towards attaining a high growth path. But perhaps more important would be the resumption of foreign investment, especially foreign direct investment (FDI). Investors are eager to come back to the country—there are a lot of profits to be made, but these investors need strong signals from Madagascar’s leaders: They are looking for political stability, rule of law, transparency and better governance. President Rajaonarimampianina needs to show resolve and leadership in all of those areas.

While FDI can lead to higher growth, they may or may not create jobs at the scale needed in Madagascar—a scale that would make growth more inclusive and sustainable. The bulk of FDI that has been coming to Madagascar in the recent past were in the extractive industry (especially mining) sector, which is, in general, capital (as opposed to labor) intensive and, unfortunately, has limited potential for substantial job creation. The jobs that are created are often highly specialized, skilled ones for which not enough Malagasy citizens are qualified. This skills gap suggests the need to train more Malagasy technicians to take advantage of these job opportunities. Integrating more local small and medium enterprises in the value chain of foreign firms investing in Madagascar would also help create jobs.

Before the crisis, a large amount of FDI came to Madagascar’s export-processing zones in order to take advantage of the preferential access to the American market under the African Growth and Opportunity Act (AGOA). These investments tended to be in labor-intensive manufacturing sectors (especially in textiles and garments) and generated a lot of good quality jobs, as many as 200,000 of which were unfortunately lost due to Madagascar’s suspension from AGOA. The process of reversing this suspension will surely be brought up during President Rajaonarimampianina’s meeting with U.S. policymakers. Now is a good time to welcome Madagascar back into the AGOA fold. At a stroke of the pen, U.S. policymakers can significantly help improve the prospects for a sustainable and inclusive recovery in Madagascar.

Authors

On Tuesday, March 18, President Hery Rajaonarimampianina, the newly elected leader of Madagascar, will be in Washington, D.C. to meet with senior officials from the Obama administration as well as the heads of the International Monetary Fund and the World Bank. The president’s visit should be the prelude to the end of a four-year period of economic sanctions during which the donor community froze all but emergency assistance to the aid-dependent Malagasy economy. From a diplomatic standpoint, the mere fact that these meetings are taking place is a significant achievement for the new authorities. However, it is safe to assume that the president’s plan to launch the Malagasy economy onto a sustainable growth trajectory and the role of the international community in helping achieve this objective will certainly be high on the agenda.

President Rajaonarimampianina is facing daunting challenges in his new role, starting with a very toxic political environment. A lot of resentment remains from the successive political crises, and progress towards a national reconciliation is uneven. The Malagasy political system has been described as dysfunctional and the current status quo is a very unstable equilibrium that could unravel at any time. While playing a balancing act, the new president will need to both challenge and resist the temptation of the “winner-takes-all-and-keeps-all” political mentality that is prevalent in Madagascar. In this type of environment, support from the international community will be crucial for the president to govern and formulate a plan for economic recovery.

Assuming that the president manages to put the political house in order (which we hope he will), Madagascar seems poised to stage a strong recovery. The country has already demonstrated the potential to attain a high growth path many times before (at least in the short term). The main challenge for Malagasy policymakers and their development partners is to ensure that the economy not only reaches a cruising altitude but remains on that high growth path for a sustained period of time. There may be many recipes for this goal but the key ingredient remains the same: jobs. A jobless recovery will not yield a prosperity that is widely shared among Malagasy citizens. People need (well-paid and secure) jobs as their ladder to climb out of poverty. And as long as growth is not inclusive, the chances of a repeat of the “Madagascar cycle” of political and economic booms and busts remain high.

Removing economic sanctions would go a long way towards attaining a high growth path. But perhaps more important would be the resumption of foreign investment, especially foreign direct investment (FDI). Investors are eager to come back to the country—there are a lot of profits to be made, but these investors need strong signals from Madagascar’s leaders: They are looking for political stability, rule of law, transparency and better governance. President Rajaonarimampianina needs to show resolve and leadership in all of those areas.

While FDI can lead to higher growth, they may or may not create jobs at the scale needed in Madagascar—a scale that would make growth more inclusive and sustainable. The bulk of FDI that has been coming to Madagascar in the recent past were in the extractive industry (especially mining) sector, which is, in general, capital (as opposed to labor) intensive and, unfortunately, has limited potential for substantial job creation. The jobs that are created are often highly specialized, skilled ones for which not enough Malagasy citizens are qualified. This skills gap suggests the need to train more Malagasy technicians to take advantage of these job opportunities. Integrating more local small and medium enterprises in the value chain of foreign firms investing in Madagascar would also help create jobs.

Before the crisis, a large amount of FDI came to Madagascar’s export-processing zones in order to take advantage of the preferential access to the American market under the African Growth and Opportunity Act (AGOA). These investments tended to be in labor-intensive manufacturing sectors (especially in textiles and garments) and generated a lot of good quality jobs, as many as 200,000 of which were unfortunately lost due to Madagascar’s suspension from AGOA. The process of reversing this suspension will surely be brought up during President Rajaonarimampianina’s meeting with U.S. policymakers. Now is a good time to welcome Madagascar back into the AGOA fold. At a stroke of the pen, U.S. policymakers can significantly help improve the prospects for a sustainable and inclusive recovery in Madagascar.